Saturday, September 6, 2014

Overview of Invest Mongolia conference

“Friends of Mongolia have gathered here in this hall…” said CEO of the Representative Office of Standard Chartered international bank in Mongolia, Shin Bonggun on stage at the two-day Invest Mongolia conference held at Blue Sky Tower. As of the first half of this year, foreign direct investment to Mongolia has decreased by 61 percent from the same period of last year, to 561.9 million USD. Shin says this figure testifies to the fact that only friends of Mongolia have stayed. He quoted the Mongolian proverb “help of needle in times of despair is better than help of camel in times of prosperity,” and continued his speech about Mongolia’s position on the debt market.

Investors interested in Mongolia convened at Blue Sky tower on September 2-3. The conference was organized at a favorable time, when several laws intended to intensify investment were amended and the Oyu Tolgoi project started operating at a profit. Private sector entrepreneurs and ongoing project implementers who have already invested in Mongolia shared their experience and the challenges they face with investors, rather than promoting future investment. Questions such as how election results affect the progress of mega projects with long-term implementations and what kind of challenges infrastructure projects face were raised and begged for answers. Readers may easily conjecture the scene at the conference from the tones of the questions investors asked. Prospective investors asked questions regarding the credibility of Mongolia, sustainability of its legal environment and accuracy of statements made by parliament members and authorities from businessmen who underwent such challenges and proceeding with caution.

In July alone, Mongolia attracted 82.4 million USD in foreign direct investment, which is the highest amount in the past six months, according to figures released by Mongol Bank. Policy makers and the government have been trying to amend the Minerals Law, Securities Law and Investment Law in order to improve the legal environment. CEO of Frontier Securities Masa Igata noted that the considerable increase in investor interest shown at the conference is the incarnation of an improved legal environment.

One of the few representatives of the government attending the conference, Vice Minister of Economic Development O.Chuluunbat, was perpetually encountered with questions regarding policy. It has not been long since Mongolia first stepped into the debt market. But the fact that evaluation agencies have demoted Mongolia’s credit rating and Mongolians have been debating debt issues created a fear among foreigners that Mongolia might repeat Argentina’s great depression that was noticeable in the hall. In response, O.Chuluunbat emphasized, “The government has a total foreign debt of 2.2 billion USD. Compared to its GDP of 10 million USD, Mongolia’s fully capable of advancing to pay its debt,” In addition to O.Chulaanbat’s comment, a representative of Standard Chartered international bank assured that bonds Mongolia has released were determined to be healthy and fine to buy in a recently conducted study.

Investors repeatedly highlighted their readiness to invest in Mongolia once state policy becomes definite and familiar, and once the Oyu Tolgoi dispute is settled. Most analysts agreed that urgently implementing mega projects labeled as significant to the national economy is the only means to re-attract lost investment. An investor underscored the railway gauge issue as being a significant obstacle in attracting further investment. However, Head of the Project Department of Mongolian Railway SOSC A.Zorig assured that the railway gauge issue would be settled during the upcoming fall parliamentary session.

Speculation that the longer the Oyu Tolgoi underground mine development is delayed, the more severely the Mongolian economy would be affected was also perceptible during the conference. Underground mine exploitation of the project, which is currently on hold awaiting several issues aside from its feasibility study concerns to be settled, is expected to start in 2016. A businessman commented that it’s hard to believe that exploitation of a mine, whose feasibility study is not even finalized yet, would start in 2016.

Investors who have been operating in Mongolia for a considerable time freely shared the challenges they face. CEO of Prophecy Coal Corporation John Lee said, “The biggest obstacle in running an enterprise in Mongolia is the lack of a centralized plan.” He added that the Government of Mongolia needs to take a definite position and has numerous unresolved and unplanned issues. He provided the fifth thermal power station as an example and commented that constructing it close to the city, which is struggling to reduce its air pollution, is inappropriate.

Referencing the Tavan Tolgoi and Oyu Tolgoi projects at every domestic and international investment conference has almost become a convention. Accordingly, a challenging duty to preach positive news and creating a favorable impression about these two projects is imposed on Da.Ganbold and Ya.Batsuuri. CEO of Erdenes Tavan Tolgoi JSC Ya.Batsuuri noted that operations at Tavan Tolgoi mine are intensifying and four million tons of coal was exported this year, doubling the amount exported in 2013; the mine is estimated to export 12 million tons of coal next year. The CEO of Erdenes Oyu Tolgoi JSC explained that the Oyu Tolgoi project, in which 9.6 million USD was invested as of 2013, will not be stopped, and negotiation meetings between the parties are advancing normally.

During the conference, several criticisms, such as discussing projects for too long a time, weak planning and failure to implement the numerous projects it discusses, were directed at the government.

Foreign exchange of 1.6 billion USD was attracted to Mongolia in 2010. Funding equivalent to 45 percent of GDP was attracted in 2011 and 2012. However, capital flow this year equals only six to seven percent of GDP. Chief Economist of Mongol Bank S.Bold explained positive repercussions, such as attracting investors and maintaining the balance of payments, implementing strict monetary policy and increasing policy development.

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