Mongolia’s new investment law: deterrent or clarification?
Mongolia has been something of a frontier Mecca for mining investors over the last several years. Drawn by the country’s vast untapped resources and proximity to China, the world’s biggest consumer of commodities, investors have poured billions of dollars into Mongolia’s tiny economy. In 2011, foreign investment constituted a whopping 62 per cent of Mongolia’s $8.6bn GDP.
But could that be about to change?
On Thursday Mongolia’s parliament passed a new law requiring both government and parliamentary approval for any foreign investments worth more than 100bn tugriks ($76m) that buy a stake of more than 49 per cent in businesses in certain strategic sectors.
The law has been softened significantly from an initial version that would have limited foreign stakes to 49 per cent in wide swathes of the economy, including sectors as varied as food, transportation and real estate.
Under the final version of the law, foreign investments need approval if they fall into any of three “strategic” sectors: minerals, banking and finance, and media and telecommunications, according to a translation of a draft read to parliament (click here to download Word document) and conversations with those close to the process. The official text of the law has not yet been released.
Investments in these sectors of more than $76m for a stake of more than 49 per cent will have to be approved by Mongolia’s Foreign Investment and Foreign Trade Agency (Fifta), and subsequently by parliament. Each has 45 days to make a decision, bringing total approval time to around 90 days. Certain other transactions may also need approval, such as transactions that may affect Mongolia’s commodity exports or create a monopoly in certain commodities markets.
Although the new regulations will slow the pace of foreign investment, investors expressed some relief at the final version of the law, which has a narrower scope and does not apply to transactions that occurred before the law was passed.
“It’s a good law for Mongolia and provides stability and clarity for investors,” said Eric Zurrin, chief executive of ResCap, a boutique investment bank in Ulan Bator. “This brings Mongolia more in line with mature, resources-rich economies like Australia and Canada.”
Others were less sanguine and said uncertainties over the law – and over elections in June – have left some major deals hanging.
“There are a couple big deals where lenders became nervous and put things on hold,” said Jim Dwyer, head of the Business Council of Mongolia. Foreign investment was crucial for development in the mining sector, he added. “The minerals are here but they are still in the ground, and money is needed to get them out.”
As Mongolia prepares for June’s nationwide parliamentary elections, managing the country’s resources in a way that best benefits Mongolians is a key political issue. The investment law sprang to the top of the parliamentary agenda after a failed attempt by Chalco, the Chinese state-owned metals company, to buy a majority stake in a coking coal mine in the Gobi desert.
The Chalco deal now appears to be on the rocks after Mongolia threatened to suspend some of the mining licenses owned by the company it was trying to buy.
With the new law in place, perhaps foreign investments in future will at least have a clearer idea of what they are in for.
But could that be about to change?
On Thursday Mongolia’s parliament passed a new law requiring both government and parliamentary approval for any foreign investments worth more than 100bn tugriks ($76m) that buy a stake of more than 49 per cent in businesses in certain strategic sectors.
The law has been softened significantly from an initial version that would have limited foreign stakes to 49 per cent in wide swathes of the economy, including sectors as varied as food, transportation and real estate.
Under the final version of the law, foreign investments need approval if they fall into any of three “strategic” sectors: minerals, banking and finance, and media and telecommunications, according to a translation of a draft read to parliament (click here to download Word document) and conversations with those close to the process. The official text of the law has not yet been released.
Investments in these sectors of more than $76m for a stake of more than 49 per cent will have to be approved by Mongolia’s Foreign Investment and Foreign Trade Agency (Fifta), and subsequently by parliament. Each has 45 days to make a decision, bringing total approval time to around 90 days. Certain other transactions may also need approval, such as transactions that may affect Mongolia’s commodity exports or create a monopoly in certain commodities markets.
Although the new regulations will slow the pace of foreign investment, investors expressed some relief at the final version of the law, which has a narrower scope and does not apply to transactions that occurred before the law was passed.
“It’s a good law for Mongolia and provides stability and clarity for investors,” said Eric Zurrin, chief executive of ResCap, a boutique investment bank in Ulan Bator. “This brings Mongolia more in line with mature, resources-rich economies like Australia and Canada.”
Others were less sanguine and said uncertainties over the law – and over elections in June – have left some major deals hanging.
“There are a couple big deals where lenders became nervous and put things on hold,” said Jim Dwyer, head of the Business Council of Mongolia. Foreign investment was crucial for development in the mining sector, he added. “The minerals are here but they are still in the ground, and money is needed to get them out.”
As Mongolia prepares for June’s nationwide parliamentary elections, managing the country’s resources in a way that best benefits Mongolians is a key political issue. The investment law sprang to the top of the parliamentary agenda after a failed attempt by Chalco, the Chinese state-owned metals company, to buy a majority stake in a coking coal mine in the Gobi desert.
The Chalco deal now appears to be on the rocks after Mongolia threatened to suspend some of the mining licenses owned by the company it was trying to buy.
With the new law in place, perhaps foreign investments in future will at least have a clearer idea of what they are in for.
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