Mongolian government last month released its reform platform
for 2012 to 2016.
been wary of Mongolia since the lead-up to its July election,
in which politicians argued that ordinary Mongolians had not
seen benefits from the massive influx of foreign investment in
the last few years. This culminatinated in the passage of the
strategic foreign investment law in late May.
these latest reforms as an attempt to further quell foreign
investors fears about protectionism, especially in the
natural resources sector.
sentiment towards foreign investment has cooled since the
government formed. Chinese state-owned company Aluminum
Corporation of China (Chalco) abandoned its contentious bid for
Hong Kong-listed SouthGobi Resources.
government action plan should further encourage foreign
investors, especially those interested in sectors other than
Ulaanbaatar-based Hogan Lovells
partner Michael Aldrich said he was cautiously optimistic that
the high-water mark had been passed for resource
He added that
the action plan was the first indication of the goals of the
new government. They show its intention to address the anxiety
of the international business community and reaffirm its
commitment to foreign investment.
It is clear
that the government strongly believes it must reduce
Mongolias dependence on the natural resources
unofficial translation of the action plan it is stated:
The key economic policy objective of the Government is
the reduction of dependency on the mining sector, achievement
of a long term sustainable development and the creation of a
competitive and diversified economy.
Tricks, consultant at Clyde & Co, said that although
tighter controls will be imposed on foreign investment in the
mining sector, there are many other sectors which the
government wants to develop and which provide scope for foreign
input and investment, such as health, infrastructure and
plan included an economic diversification policy to spur
development of industries such as industrialisation, tourism
and advanced technology, to name a few.
But the plan
also includes key restrictions. Tricks said that while its tone
is positive about FDI, it includes caveats about investment by
foreign state-owned companies.
government is understandably concerned about the prospect of
neighbouring countries trying to control Mongolian natural
resources, he said.
unsurprising that the new government is cautious about
investments by state-owned companies. It has been widely
reported that Chalcos proposed acquisition of SouthGobi
resources inspired the Strategic Foreign Investment
that little progress has been made regarding implementation of
the foreign investment law. Chris Melville, a partner at Hogan
Lovells Ulaanbaatar, said that the coalition government needed
some time to form, including selection of ministerial
June, the government has understandably been focused on
internal matters rather than addressing the concerns of foreign
investors, he commented.
law was passed months ago, Aldrich noted that he has not seen a
specific policy for its implementation from the government.
Inaction on the governments part allows less
enthusiastic attitudes to fester.
concerned about the political situation in Mongolia. While many
speculated that the Strategic Foreign Investment law would be
modified to be more foreign-investment friendly after the
election, there are members of the State Great Hural
(Parliament) who may not support such reform.
that foreign investors may be less enthusiastic about Mongolia
because they do not have a good understanding of the Strategic
Foreign Investment Law.
seen incorrect reports about an approval process for any
acquisition in excess of 5% of the shares of any Mongolian
company, and that is just plain wrong, he said. So
it is not surprising that there is a tendency for a lot of
foreign investors to view the legal situation as being worse
than it is.
One of the
most important goals of the action plan is the modernisation of
the Mongolia Stock Exchange (MSE) facilitated by the passage of
the Securities Law. This is on the agenda for the next
Parliament session, which opened October 1.
Law was developed in collaboration with the London Stock
Exchange, and included provisions for various instruments
necessary for the development of the MSE. Melville said that
some progress had been made, including moving to a T+3
settlement system to fit with international standards. But
liquidity remains at a low level.
partner at Gibson Dunn, said that the securities law had been
delayed multiple times, but was critical for attracting foreign
that it must be in effect for Erdenes Tavan Tolgoi to list on
the MSE in conjunction with the contemplated listings on the
London Stock Exchange and the Hong Kong Stock Exchange, as the
current law does not permit listings in multiple
Securities Law is only the framework law: further legislation
providing for supporting regulations such as depository
regulations and disclosure requirements are also
Theres still a lot
of work to be done to ensure the new legislation works together
in a coherent fashion, said Melville.
government seems more welcoming, investor concerns remain. It
has been widely reported that the government may renegotiate
the Oyu Tolgoi investment agreement.
possibility of renegotiating the Oyu Tolgoi investment
agreement would in effect change the rules in the middle of the
game and would be a terrible sign for foreign investors
contemplating investing in Mongolia, said
resolved, this issue will have a chilling
that investors will take a wait-and-see approach. Until things
are more clear, few investors will look towards new investments
Parliaments decisions in its upcoming session, Aldrich
said that the reforms implemented will not be anti-foreign in
But he warned
that attitudes towards the free market have changed.
Mongolians are learning to trust less in free market
principles, and for this reason, are extending state power,
which is in line with the current international reaction
against the ideology of letting markets regulate themselves,"
he said. "Mongolians perceive that markets have simply not done
a great job at self-regulation.
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