Monday, July 28, 2014

The other side of the coin

It seems that everyone is now concerned that Mongolia’s economic growth is not going to be as robust as was expected for 2014, and the country’s future prospects look a bit grey.
This is not just because of the great uncertainty about the Mongolian legal environment, which has persisted since 2012. It is also due to declining commodity prices. Mongolia is very dependent upon revenues from commodities such as the precious and base metals and coal it produces.

With the recently lowered GDP growth rate estimates by international organizations, unimpressive FDI inflow statistics for the first half of 2014, a shocking inflation figure of 14.6 percent and an ever-deteriorating exchange rate, Mongolia is not yet a top destination for foreign investors, even though the country is said to be sitting on minerals worth more than one trillion USD.

However, in spite of the negative outlook from various organizations, I personally believe that predictions of doom and gloom for Mongolia are completely unwarranted, and it is due to misinformation and ignorance about Mongolia’s true potential. In fact, in my opinion, now is the best time to invest in Mongolia. Let me explain why.

Whether you agree or not, I believe my opinion is justified by a number of facts. Firstly, the recent announcements about mega project deals with China such as the one billion ton coal supply contract for the next 20 years, a Sinopec memorandum of understanding (MoU) with the Mining Ministry for a coal gasification plant, and an MoU between the Mongolian government and a consortium of GDF Suez, Sojits Corporation, Posco Energy and Newcom Group for the multi-billion dollar development of CHP-5 (Combined Heating and Power Plant) clearly illustrate Mongolia’s business potential and Mongolia’s willingness and intention to become an important player in the world’s business community.

Secondly, it is well known that commodity prices are always volatile, reflecting events and phases of the global economy and regional economic activity. We are now in a boom-bust economic cycle. When there is downward movement, then upward movement follows. Therefore, even though Mongolia’s main export commodities prices are now significantly lower than in previous years, they will definitely revive sooner than predicted. According to statista.com, the GDP growth rate of China, Mongolia’s biggest buyer of commodities, is predicted to be around six to seven percent until 2020. This means there will be a growing appetite and demand for copper, coal and iron ore from Mongolia’s southern neighbor.

Moreover, in addition to Mongolia’s recently passed Investment Law, Investment Funds Law and the ending of the moratorium on issuing exploration licenses, the amendments to the Mineral Law passed by Mongolian parliament on July 1, 2014, shows that foreign investment is definitely being welcomed in Mongolia from all parts of the world.

The above actions taken by the Monglian government and the current stage of the general economic lifecycle in the country clearly support my take on Mongolia’s economy in the near future. Accordingly, my expectation is that Mongolia will be back on track again and a big economic expansion is about to happen here. In a nutshell, Mongolia’s long term economic prospects look very promising.

So, my question for you now is, when the world’s once fastest growing economy is back at the center of international investors’ attention, how would you, as a foreign investor, like to be positioned to do business in Mongolia?

My suggestion to people, whether they are professional or amateur investors, or even casual adventurers who are looking for business opportunities in Mongolia, is that now is the best time to come to Mongolia and get your slice of cake.

Because some people are taking a relatively conservative and cautious position on economic prospects and the property market, you can find great properties in Ulaanbaatar for very inexpensive prices to sell later for a profit, provided that you have cash available to invest immediately.

Also, since the government has cancelled its previous ill-advised moratoriums on exploration licenses, mining activities will once again commence. Hence, suppliers’ businesses, such as catering, transportation, mining equipment, and service providers for mining companies are sure to benefit greatly. How about investing in one of these enterprises?

If the above business prospects are not what you are interested in, then, you may be interested in investing in more recession-proof industries such as the food industry, information technology and education in Mongolia, which can generate a comfortable level of income for you. In addition, professional services businesses such as accounting and legal services, and insurance and small loan services are likely to show robust growth due to strong incentives for companies to save HR costs and manage their short-term financial needs. These are just a few of the potentially profitable business opportunities in Mongolia existing now.
In addition, I can assure you that if you are an entrepreneurially minded person, then, you will be pleased to know that there are many well educated, well-qualified, energetic, young people in Mongolia who are willing to work for you during this uncertain economic time at a lower rate of pay so they may gain experience. This is a huge plus that compliments the recently revived economic and legal environment in Mongolia, which now, once more, welcomes foreign investment.

In summary, the economic and legal environment Mongolia is good now overall, and it is rapidly improving every day. There are investment opportunities in Mongolia with great potential. Therefore, my final piece of advice is to see the other side of the coin and remember, from time to time, Brian Cohen’s song “Always Look on the Bright Side of Life” from Monty Python’s “Life of Brian”. Take a closer look and see what Mongolia has to offer you!

Zulbayar Badral works for Lehman Bush LLC, a consulting firm which provides business consulting, market intelligence and corporate services. Lehman Bush LLC has affiliate offices in Beijing, Shanghai, Hong Kong and Houston, Texas. For more information, please visit lehmanbush.mn. You can contactB. Zulbayar at Zbadral@lehmanbush.com.

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