When KFC opened its first fast-food restaurant in Mongolia at the end of May it was one of the more visible signs that the confidence of foreign investors is returning. And if the long line of people queuing up on Chinggis Khan Avenue for a chance to taste Colonel Sanders' chicken on day one is any indication, Mongolia is open to foreign investment.
Of course, that is to be expected for a country that is heavily dependent on foreign capital to achieve its growth and development goals. Last year Mongolia's GDP only just exceeded $10 billion, which is on par with Laos but significantly below Myanmar at about $50 billion. And because it is not a manufacturing country, it has to import practically everything, including the capital goods and equipment needed to develop its abundant mineral resources.
However, as recently as six months ago Mongolia did not seem to be behaving like a country keen to welcome foreign investors. Talk of resource nationalism was in the air.
After growing at a dizzying 17% pace in 2011, the commodities-driven economy fell out of favour last year after the introduction of a hastily conceived foreign investment law, which significantly increased the hurdles to investing in strategic sector companies, mining included.
Furthermore, last year's newly elected government sought to renegotiate an agreement with Rio Tinto-controlled Turquoise Hill Resources regarding the $6.2 billion Oyu Tolgoi gold and copper mining project an agreement that was signed in October 2009 and went into effect in March 2010.
The result was jitters about unexpected investment risks and delays to exporting metals from the country's largest mining project: Oyu Tolgoi is expected to account for about one-third of GDP once it is fully up and running.
But a lot has happened since April that suggests the government and the president are listening to feedback and are working towards an investment environment that is acceptable and even attractive to foreign parties.
There are signs that foreign investors are returning again and those that stayed are increasing their exposure.
This follows what appears to be an about-face for the government, which has retreated from the most contentious issues in its investment and mining laws, and is affirming Mongolia’s business-friendly stance.
Another key event has been the re-election of the president for a second term at the end of June. Mongolia is now looking at a period of political stability until the next election in 2016.
Another reason for investor optimism is a turn away from the foreign investment law widely seen by financiers as onerous.
The controversial law was emended in April so that private-sector companies no longer need to seek approval from parliament for investments into Mongolian companies operating in any of the four sectors deemed to be strategic: mining, finance, telecom and media. They simply need government approval.
FinanceAsia’s August edition contains the full article.
