06-10-2019, 09:14 PM
** 10-Jun-2019 World View: Mongolia's economy expected to continue fast growth
Mongolia's GDP growth rate is being described by analysts as
"explosive," after reaching 6.9% growth in 2018, up from
5.1% GDP growth in 2017.
Exports now account for more than half of Mongolia’s GDP. The main
export commodities are copper, apparel, livestock, animal products,
cashmere, wool, hides, fluorspar, other nonferrous metals, coal and
crude oil.
It hasn't always been like that. Mongolia became an independent
democracy in 1991, with the collapse of the Soviet Union. Since then
it showed steady growth, mainly fueled by exports of coal and copper,
as well as by foreign direct investment.
In 2011, Mongolia's economy grew by an astronomical 17.5%, thanks to
its huge reserves of copper, coal and gold, making the economy seem
invincible. Instead of saving some of that money, Mongolia borrowed
billions of dollars more to invest in huge road and infrastructure
projects.
By 2014, deeply in debt, Mongolia's economy began to collapse because
of falling commodity prices, triggering reduced foreign investments
and reduced purchases by China. Mongolia's economy experienced a near
collapse in the 2014-2016 period, with GDP growth falling
to 1.2% in 2016.
After 2016, with the rise in commodity prices, all the factors were
reversed. Coal mining saw a 63.1% annual surge, due to growing coal
exports to China, which replaced North Korean coal with Mongolian coal
in 2017 as part of a sanctions response against North Korea's nuclear
testing activities. Mongolia has also been receiving support from a
number of sources, including the International Monetary Fund (IMF),
the World Bank, the Asian Development Bank and the International
Investment Bank.
With the growing economy, citizens became more affluent as well. The
sectors that attract most foreign investment are mining, oil and
construction. Other investment sectors include raw materials,
livestock, mining, food processing, telecommunications and tourism.
**** Reducing dependency on China and Russia
As a landlocked country, Mongolia is dependent on its big neighbors,
Russia and China. Mongolia imports almost all of its crude oil from
Russia. 90% of Mongolia's exports, particularly coal and copper, go
to China. Major Chinese companies operating in Mongolia include Bank
of China Ulan Bator Representative Office and Air China Mongolia.
The dependency on China is symbiotic to some extent. China is heavily
dependent on the import of commodities, and Mongolia is one of its
main suppliers. This dependency may be growing because of growing
tensions with Australia, which historically has been China's main
supplier of copper and coal.
China-Australia tensions have been growing over numerous issues,
including China's infiltration into Australia's government,
cybersecurity, and China's influence in the Pacific Island nations.
Because of the tensions, clearing times through China's customs have
doubled to more than 40 days. China has sharply reduced purchases of
Australian coal, and Mongolia has been the biggest beneficiary, with
coal exports rising 15% to 7.8 million metric tons in the first
quarter.
But the problem with being dependent on China is that China giveth,
and China taketh away, as in the Australia case. Another example is
South Korea in 2017, when China's government was enraged because South
Korea permitted deployment of the THAAD defensive missile system, to
protect itself from North Korean missiles. China retaliated by
banning South Korean goods for sale in China, South Korean pop stars
and entertainers, and packaged tours, cruise tours and charter flights
to Korea.
Mongolia was also targeted by China's petty retaliation. In 2016,
Mongolia's economy was in crisis because of huge debts incurred from
borrowing money for infrastructure projects. Mongolia requested a
large loan from China to get through the crisis. But in November of
that year, the Buddhist leader the Dalai Lama visited Mongolia's
capital city Ulaanbaatar in November for a six-day visit. More than
half of Mongolia's population are Buddhist, and tens of thousands of
them flocked to see the Dalai Lama, with some traveling hundreds of
miles.
China does not like the Dalai Lama, as he is worshipped by millions
of Buddhists in Tibet, where China is violently cracking down on
Buddhist worshippers. So China punished Mongolia by blocking the loan
and by closing part of the border, leaving hundreds of trucks carrying
copper and coal backed up on the highway in sub-zero temperatures.
Mongolian officials were forced to apologize, and promised never,
never, never to invite the Dalai Lama again.
So in the last few years, China has used massive economic retaliation
against Australia, South Korea and Mongolia, and has threatened many
other countries and organizations with economic retaliation unless
they sided with China on the Taiwan question. In view of China's
policies of using this kind of retaliation for something as simple as
inviting a Buddhist leader to visit, it's pretty obvious why Mongolia
would like to reduce its dependency on China.
Furthermore, there is centuries-old history that makes ordinary people
in Mongolia suspicious of China's motives. Anti-Chinese sentiment has
been mobilized by politicians as part of a wider nationalist
narrative.
In order to reduce its dependency on China, Mongolia in the last year
has been taking steps to improve the country's legal framework in
order to encourage foreign investment from other countries. The steps
taken include:
* Remove regulations and restrictions that make it difficult for
foreign investors to do business in Mongolia.
* lift the moratorium on new mining exploration licenses
* find ways to maximize foreign investment in natural resources, by
providing related goods and services that go beyond mining. An
example is coal washing.
* reach out to Japan, South Korea, US and Australia for investors
* at the same time, diversify to attract foreign investment in
other, non-mineral activities. Some targets include tourism and
hospitality, e-commerce, and agribusiness.
*** Investment sectors -- mining, real estate, retail, tourism
Mongolia has a relatively young population, with about 42% under the
age of 24. A quarter of the population is under the age of 14. The
Mongolian people are well educated, with a literacy rate of 97%, one
of the highest in the world. Mongolia is a huge land, containing an
estimated $1.5-2 trillion in minerals. These basic facts mean that in
the long run, Mongolia is an excellent target for foreign investment,
with a great deal of profit potential in the next decade.
With plenty of land, the real estate sector has been booming, though
not for speculation purposes. The country has only three million
people, but is three times the size of France, which has 67 million
people. So speculative real estate investments are not likely to pay
off.
But with Mongols having more disposable income than they've had in the
recent past, the real estate boom is being led by the retail sector,
with shopping centers displaying many luxury brands like Versace
Collection and Burberry. Investment opportunities in the retail
segment include expansion of the smartphone market and digital
communications, and financial services. Emerging companies such as
LendMN and Ard Financial Service use AI-based sophisticated technology
to build fast growing applications in solvable markets.
More than 100 international brands have opened up exclusive franchises
or wholly owned outlets in Ulaanbaatar to date. At the same time,
there is still a need for brands targeted at mass market consumers to
cater to the growing local appetite for conspicuous consumption.
However, pollution is a major problem for Ulaanbaatar. Many people
burn coal and plastic just to survive temperatures as low as minus 40
degrees. Ulaanbaatar is one of the most polluted cities on the
planet, alongside New Delhi, Dhaka, Kabul, and Beijing.
Besides the danger of retaliation from China, potential investors
should keep watch for one more development: Under the guise of
fighting corruption, Mongolia's President Khaltmaa Battulga has pushed
through the parliament a law that gives him control of the courts,
including the ability to assign or remove judges, or to reassign
cases. This could mean that commercial disputes will be decided
politically, rather than by democratic institutions.
---- Sources:
-- Mongolia coal exports surge 15 pct in Q1 after China Australia ban
https://www.reuters.com/article/mongolia...SL3N21X1QX
(Reuters, 15-Apr-2019)
-- Doing business in Mongolia: Mongolia trade and export guide
https://www.gov.uk/government/publicatio...o-mongolia
(UK Government, 8-Feb-2018)
-- Moody's upgrade brings FDI optimism for Mongolia
https://www.fdiintelligence.com/News/Moo...r-Mongolia
(FDI Intelligence, 22-Feb-2018)
-- Mongolia: Foreign investment
https://en.portal.santandertrade.com/est...nvesting-3
(Santander Trade, Sept 2018)
-- FDI / The World Bank in Mongolia
https://www.worldbank.org/en/country/mongolia/overview
(World Bank, 28-Sep-2018)
-- Investment Reform Map for Mongolia
https://www.ifc.org/wps/wcm/connect/f2a8...OD=AJPERES
(World Bank / IFC, June 2018)
-- China and Japan’s Investment Competition in Mongolia
https://thediplomat.com/2018/08/china-an...-mongolia/
(Diplomat, 1-Aug-2018)
-- Tapping into hidden potentials and new opportunities in Mongolia
https://blog.mongolia-properties.com/hid...n-mongolia
(Mongolia Properties, 11-Feb-2019)
-- Big names are moving into Mongolia
https://blog.mongolia-properties.com/big...cial-space
(Mongolia Properties, 7-Jan-2019)
-- Mongolia’s GDP growth at 6.9% in 2018, official data shows
https://www.bne.eu/mongolia-s-gdp-growth...ws-156555/
(Business New Europe, 19-Apr-2019)
-- Toxic air tears apart families in Mongolia
https://phys.org/news/2019-03-toxic-air-...lia_1.html
(AFP, 31-Mar-2019)
-- Battulga Khaltmaa / Genghis Khan's Biggest Fan Is Testing
Mongolia's Democracy
https://www.bloomberg.com/news/features/...-democracy
(Bloomberg, 16-Apr-2019)
-- Khaltmaagiin Battulga / Mongolia’s President Is Slicing Away Its
Hard-Won Democracy
https://foreignpolicy.com/2019/03/29/mon...democracy/
(ForeignPolicy, 29-Mar-2019)
Mongolia's GDP growth rate is being described by analysts as
"explosive," after reaching 6.9% growth in 2018, up from
5.1% GDP growth in 2017.
Exports now account for more than half of Mongolia’s GDP. The main
export commodities are copper, apparel, livestock, animal products,
cashmere, wool, hides, fluorspar, other nonferrous metals, coal and
crude oil.
It hasn't always been like that. Mongolia became an independent
democracy in 1991, with the collapse of the Soviet Union. Since then
it showed steady growth, mainly fueled by exports of coal and copper,
as well as by foreign direct investment.
In 2011, Mongolia's economy grew by an astronomical 17.5%, thanks to
its huge reserves of copper, coal and gold, making the economy seem
invincible. Instead of saving some of that money, Mongolia borrowed
billions of dollars more to invest in huge road and infrastructure
projects.
By 2014, deeply in debt, Mongolia's economy began to collapse because
of falling commodity prices, triggering reduced foreign investments
and reduced purchases by China. Mongolia's economy experienced a near
collapse in the 2014-2016 period, with GDP growth falling
to 1.2% in 2016.
After 2016, with the rise in commodity prices, all the factors were
reversed. Coal mining saw a 63.1% annual surge, due to growing coal
exports to China, which replaced North Korean coal with Mongolian coal
in 2017 as part of a sanctions response against North Korea's nuclear
testing activities. Mongolia has also been receiving support from a
number of sources, including the International Monetary Fund (IMF),
the World Bank, the Asian Development Bank and the International
Investment Bank.
With the growing economy, citizens became more affluent as well. The
sectors that attract most foreign investment are mining, oil and
construction. Other investment sectors include raw materials,
livestock, mining, food processing, telecommunications and tourism.
**** Reducing dependency on China and Russia
As a landlocked country, Mongolia is dependent on its big neighbors,
Russia and China. Mongolia imports almost all of its crude oil from
Russia. 90% of Mongolia's exports, particularly coal and copper, go
to China. Major Chinese companies operating in Mongolia include Bank
of China Ulan Bator Representative Office and Air China Mongolia.
The dependency on China is symbiotic to some extent. China is heavily
dependent on the import of commodities, and Mongolia is one of its
main suppliers. This dependency may be growing because of growing
tensions with Australia, which historically has been China's main
supplier of copper and coal.
China-Australia tensions have been growing over numerous issues,
including China's infiltration into Australia's government,
cybersecurity, and China's influence in the Pacific Island nations.
Because of the tensions, clearing times through China's customs have
doubled to more than 40 days. China has sharply reduced purchases of
Australian coal, and Mongolia has been the biggest beneficiary, with
coal exports rising 15% to 7.8 million metric tons in the first
quarter.
But the problem with being dependent on China is that China giveth,
and China taketh away, as in the Australia case. Another example is
South Korea in 2017, when China's government was enraged because South
Korea permitted deployment of the THAAD defensive missile system, to
protect itself from North Korean missiles. China retaliated by
banning South Korean goods for sale in China, South Korean pop stars
and entertainers, and packaged tours, cruise tours and charter flights
to Korea.
Mongolia was also targeted by China's petty retaliation. In 2016,
Mongolia's economy was in crisis because of huge debts incurred from
borrowing money for infrastructure projects. Mongolia requested a
large loan from China to get through the crisis. But in November of
that year, the Buddhist leader the Dalai Lama visited Mongolia's
capital city Ulaanbaatar in November for a six-day visit. More than
half of Mongolia's population are Buddhist, and tens of thousands of
them flocked to see the Dalai Lama, with some traveling hundreds of
miles.
China does not like the Dalai Lama, as he is worshipped by millions
of Buddhists in Tibet, where China is violently cracking down on
Buddhist worshippers. So China punished Mongolia by blocking the loan
and by closing part of the border, leaving hundreds of trucks carrying
copper and coal backed up on the highway in sub-zero temperatures.
Mongolian officials were forced to apologize, and promised never,
never, never to invite the Dalai Lama again.
So in the last few years, China has used massive economic retaliation
against Australia, South Korea and Mongolia, and has threatened many
other countries and organizations with economic retaliation unless
they sided with China on the Taiwan question. In view of China's
policies of using this kind of retaliation for something as simple as
inviting a Buddhist leader to visit, it's pretty obvious why Mongolia
would like to reduce its dependency on China.
Furthermore, there is centuries-old history that makes ordinary people
in Mongolia suspicious of China's motives. Anti-Chinese sentiment has
been mobilized by politicians as part of a wider nationalist
narrative.
In order to reduce its dependency on China, Mongolia in the last year
has been taking steps to improve the country's legal framework in
order to encourage foreign investment from other countries. The steps
taken include:
* Remove regulations and restrictions that make it difficult for
foreign investors to do business in Mongolia.
* lift the moratorium on new mining exploration licenses
* find ways to maximize foreign investment in natural resources, by
providing related goods and services that go beyond mining. An
example is coal washing.
* reach out to Japan, South Korea, US and Australia for investors
* at the same time, diversify to attract foreign investment in
other, non-mineral activities. Some targets include tourism and
hospitality, e-commerce, and agribusiness.
*** Investment sectors -- mining, real estate, retail, tourism
Mongolia has a relatively young population, with about 42% under the
age of 24. A quarter of the population is under the age of 14. The
Mongolian people are well educated, with a literacy rate of 97%, one
of the highest in the world. Mongolia is a huge land, containing an
estimated $1.5-2 trillion in minerals. These basic facts mean that in
the long run, Mongolia is an excellent target for foreign investment,
with a great deal of profit potential in the next decade.
With plenty of land, the real estate sector has been booming, though
not for speculation purposes. The country has only three million
people, but is three times the size of France, which has 67 million
people. So speculative real estate investments are not likely to pay
off.
But with Mongols having more disposable income than they've had in the
recent past, the real estate boom is being led by the retail sector,
with shopping centers displaying many luxury brands like Versace
Collection and Burberry. Investment opportunities in the retail
segment include expansion of the smartphone market and digital
communications, and financial services. Emerging companies such as
LendMN and Ard Financial Service use AI-based sophisticated technology
to build fast growing applications in solvable markets.
More than 100 international brands have opened up exclusive franchises
or wholly owned outlets in Ulaanbaatar to date. At the same time,
there is still a need for brands targeted at mass market consumers to
cater to the growing local appetite for conspicuous consumption.
However, pollution is a major problem for Ulaanbaatar. Many people
burn coal and plastic just to survive temperatures as low as minus 40
degrees. Ulaanbaatar is one of the most polluted cities on the
planet, alongside New Delhi, Dhaka, Kabul, and Beijing.
Besides the danger of retaliation from China, potential investors
should keep watch for one more development: Under the guise of
fighting corruption, Mongolia's President Khaltmaa Battulga has pushed
through the parliament a law that gives him control of the courts,
including the ability to assign or remove judges, or to reassign
cases. This could mean that commercial disputes will be decided
politically, rather than by democratic institutions.
---- Sources:
-- Mongolia coal exports surge 15 pct in Q1 after China Australia ban
https://www.reuters.com/article/mongolia...SL3N21X1QX
(Reuters, 15-Apr-2019)
-- Doing business in Mongolia: Mongolia trade and export guide
https://www.gov.uk/government/publicatio...o-mongolia
(UK Government, 8-Feb-2018)
-- Moody's upgrade brings FDI optimism for Mongolia
https://www.fdiintelligence.com/News/Moo...r-Mongolia
(FDI Intelligence, 22-Feb-2018)
-- Mongolia: Foreign investment
https://en.portal.santandertrade.com/est...nvesting-3
(Santander Trade, Sept 2018)
-- FDI / The World Bank in Mongolia
https://www.worldbank.org/en/country/mongolia/overview
(World Bank, 28-Sep-2018)
-- Investment Reform Map for Mongolia
https://www.ifc.org/wps/wcm/connect/f2a8...OD=AJPERES
(World Bank / IFC, June 2018)
-- China and Japan’s Investment Competition in Mongolia
https://thediplomat.com/2018/08/china-an...-mongolia/
(Diplomat, 1-Aug-2018)
-- Tapping into hidden potentials and new opportunities in Mongolia
https://blog.mongolia-properties.com/hid...n-mongolia
(Mongolia Properties, 11-Feb-2019)
-- Big names are moving into Mongolia
https://blog.mongolia-properties.com/big...cial-space
(Mongolia Properties, 7-Jan-2019)
-- Mongolia’s GDP growth at 6.9% in 2018, official data shows
https://www.bne.eu/mongolia-s-gdp-growth...ws-156555/
(Business New Europe, 19-Apr-2019)
-- Toxic air tears apart families in Mongolia
https://phys.org/news/2019-03-toxic-air-...lia_1.html
(AFP, 31-Mar-2019)
-- Battulga Khaltmaa / Genghis Khan's Biggest Fan Is Testing
Mongolia's Democracy
https://www.bloomberg.com/news/features/...-democracy
(Bloomberg, 16-Apr-2019)
-- Khaltmaagiin Battulga / Mongolia’s President Is Slicing Away Its
Hard-Won Democracy
https://foreignpolicy.com/2019/03/29/mon...democracy/
(ForeignPolicy, 29-Mar-2019)
