Foreign investors and local decision makers discussed Mongolia’s economic outlook in the face of global economic turmoil during the Mongolia-Asia Investment Forum 2009, which was held at the end of March in Hong Kong SAR, China. Over 400 delegates from 90 countries participated at the forum, most of which were from Asian countries this year.

Mongolia’s Parliament approved an economic stimulus action program during its extraordinary session to weather the current international financial crisis.
However, officials and bankers say that because Mongolia is not fully integrated into world financial system, it was not hit as hard by the crisis as other countries.
Mongolian Deputy Prime Minister M. Enkhbold said at the conference that Mongolia’s capital market has not fully developed, and no shares are traded on foreign stock exchanges. “That’s why the global economic slowdown stemming from the financial crisis has no [direct] effect on Mongolia,” he said.
However the country’s economic growth is expected to slow down to 3-4 percent in 2009 due to external factors from global financial crisis. “Generally, Mongolia’s banking sector is OK,” said Peter Morrow, CEO of Khan Bank. “Inflation is down from 34 percent to 20 percent. There is not much adverse impact from the global financial crisis on Mongolian banking sector.”
Z. Battushig, vice chairman of FIFTA at the conference, said that Mongolia is committed to finalizing investment agreement at the earliest stage possible. “Mongolia is committed to create a better investment environment and to attract foreign direct investment for economic development,” he said.
But many foreign investors say that Mongolia has already missed a “golden” opportunity. “Unfortunately, golden moments have been missed,” said Ralph Parks, Chairman-Asia of Oaktree Capital Limited.
In return, MP O.Chuluunbat, a former Governor of the Bank of Mongolia (central bank), said “Mongolian authority fully understands golden opportunity, and we are hard at work to correct these mistakes. Windfall profits taxes [for one] will be eliminated.”
The Government and both major political parties are reportedly in favor of abolishing the windfall profits tax law after the expected conclusion of the Oyu Tolgoi Investment Agreement during Parliament’s spring session.
“Since it was passed in 2006, approximately half of gold produced is in the informal sector, and is smuggled out of Mongolia,” said Jim Dwyer, executive director of the Business Council of Mongolia. Windfall profits tax law is a big hindrance for gold mining companies that are subject to pay over 60 percent of their revenues as tax to the Government.
Foreign investors, who were informed that windfall taxes would change, raised questions about the value added tax rate in Mongolia, saying it also needs reconsideration.
Another hot topic at the conference was Mongolia’s legislative process for the draft investment agreement of Oyu Tolgoi, a world-class copper and gold project being developed by Ivanhoe Mines and its strategic partner Rio Tinto in the southern Gobi.
The agreement has been endorsed by the Government of Mongolia and the National Security Council, and submitted to Parliament for approval.
During its extraordinary session, the Parliament’s Standing Committee on Economics made an initial review of the Oyu Tolgoi Investment Agreement in March. Parliament started further discussion regarding the agreement during its regular spring session that opened this month.
The Standing Committee on Economics principally agreed to the deal, but parliamentarians requested that 13 points be clarified. A working group has been formed to address the issues and is currently conducting a review.
Ivanhoe Mines said last week that they and Rio Tinto are continuing their cooperation with the working group to prepare additional information to facilitate a final approval of the draft investment Agreement.
Along with the Oyu Tolgoi project, uranium project developers also expressed their concerns at the conference.
“If Oyu Tolgoi is approved, it will be followed by Tavan Tolgoi. Tavan Tolgoi will be followed by uranium projects, which would affect us. Currently uranium projects have stopped their operations because it is uranium,” said Dr. Gerald Harper, Senior Vice President Mongolian Operations of Western Prospectors Group, a Canadian company that holds the license for the Gurvanbulag uranium deposit, which was previously explored by Russian interests.
Gurvanbulag has the potential to become the first Mongolian uranium mine. The Government of Mongolia named uranium deposits as strategically important and it is in talks with Russian nuclear conglomerations to build small-scale nuclear power plants based on its resources.
A number of foreign countries have expressed their interests in cooperating in nuclear field with Mongolia.
Eric de Seze, CEO of Areva Mongol, a subsidiary of the French industrial company Areva, said that patience is important for investors interested in Mongolia. “Two years to approve, three years to production. That’s fine. Finally an end, which is OK. Optimism remains,” said Eric. “We’re waiting our turn.”
Foreign investors at the Hong Kong conference hope that an agreement on at least one of those strategic mineral deposits will be signed and approved in about one or two years, which would then open gate and restore confidence in investing in Mongolia.
The next investment conference will be held in September in Ulaanbaatar.

 

Source: UB Post

Apr 9, 2009