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Increase in foreign investment expected

D.Narantuya

According to the statistical data on social and economic situation in the country, foreign direct investment (FDI) in Mongolia reached a total of USD 205.2 million in 2002, which is USD 32.7 million and USD 79.2 million more as compared to what it was in 2001 and 2000 respectively. This increase is the result of a number of initiatives undertaken by the Government of Mongolia with the aim of attracting FDI, said B.Ganzorig, Head of the Foreign Investment and Foreign Trade Agency (FIFTA). From among numerous measures implemented by the Government, Mr.Ganzorig highlighted two major initiatives. The first was the declaring of the year 2002 as the Year to Promote Investment and concrete works directed at improving the legal environment for foreign investment as well as advertising the opportunities and advantages of investing in Mongolia. For example, the introduction of amendments into a total of 13 laws, including the Foreign Investment Law, General Law on Free Zones, Mineral Law, Law to Support Exports, Land Law, Law on Land Fees, and Securities Law has created a more favorable investment environment in the country. The second was the reduction in the number of special licenses required for running a business from more than 600 to 87, which marked a significant step in promoting investment by decreasing bureaucratic obstacles faced by the investors, said Mr.Ganzorig.

The Government of Mongolia has listed mining, agricultural processing industry and tourism as priority foreign investment sectors. In recent years, it has also attached great significance to developing the IT sector. Within the priority sectors, continued Mr.Ganzorig, the investment in mining and crude oil sectors has experienced the most drastic increase, coming to account for 48.5% of the total amount of investment in Mongolia. The country’s rich mineral resources, including the Oyu Tolgoi or Turquoise Hill Mine found to contain rich deposits of copper and gold attract the interest of foreign investors to Mongolia’s mining sector. It has been estimated that in the period between 1990 and end of 2003 a total of 3024 companies from 73 countries invested around USD 1 billion in 20 sectors of our country’s economy.  Almost half of this money or USD 462.076 went into the mining and crude oil sectors. Further down the list are trade and public catering sectors, light industry and the animal byproducts processing industry that have attracted USD 128.466, USD 83.338, USD 50.267 in foreign investment respectively. In other words, investment in agricultural and animal byproducts processing industry sectors that accounts for 5.4% of the total amount of investment is far too little as compared to 48.5% channeled into the mining sector. The investment in tourism is even less, constituting only 1.5% of the total amount of investment in Mongolia.

This gap though doesn’t mean that we have failed to attract investment into these sectors or that no one is interested in putting money into them, holds Mr.Ganzorig. We are working to publicize investment opportunities that exist in all of these sectors and are even organizing events to advertise specifically one sector of the economy, continued the head of FIFTA. For instance, in March 2004 we held an Investors’ Forum in the Food and Agricultural Sector. As for our activities abroad, we are carrying out events to advertise the Visit Mongolia Year. Although these two sectors do not require as much investment as the mining sector, the profits they earn similarly come from exports or tourists who visit Mongolia, said Mr.Ganzorig.

According to the estimates made by the FIFTA, FDI that comes into Mongolia is likely to increase in the future. This trend is similar to the one observed in South and North East Asia that are witnessing a steady increase in inflows of foreign investment. In fact sheets containing various indicators related to FDI issued by the United Nations Conference on Trade and Development (UNCTAD), Mongolia’s position is moving gradually upwards. Let us take for example, the Inward FDI Performance Index, which ranks countries by the FDI they receive relative to their economic size. It is a ratio of a country’s size in global FDI flows to its share in global GDP.      In terms of its FDI Performance Index, Mongolia occupied the 79th position in 1991-1993, moving to the 76th, 67th, 73d, and 48th place in 1993-1995, 1995-1197, 1997-1999, and 1999-2001 respectively. Furthermore, variables such as per capita GDP, share of exports in GDP, average number of telephone lines per 1,000 inhabitants and mobile phones per 1,000 inhabitants, per capita commercial energy use, share of tertiary students in the population, world market share in exports of natural resources, world market share of imports of parts and components for automobiles and electronic products, world market share of exports of services, and share of world FDI inward stock are used in determining a country’s Potential FDI Index, which is reflective of factors that are expected to affect an economy’s attractiveness to foreign investors. In 1991-1993 Mongolia occupied the 92d position with respect to its Potential FDI Index, going to the 84th, 78th, 67th, and 69th position in 1993-1995, 1995-1997, 1997-1999 and 1999-2001 respectively. One can see that the country’s position has improved by 23 points compared to what it was a decade ago. Whereas in 1993-1995 Mongolia was among the countries written at the bottom of the FDI Potential list, in 1999-2001 it was included in the group of countries considered to have a high FDI potential.

Changes made in the Foreign Investment Law constitute another step in the direction of promoting investment in the country. Thus, if previously it took 60 days to get a permission to set up a company with an injection of foreign investment, the introduction of amendments allowed shortening this period to 14 days. And although officially it takes two weeks to get the permission, the setting up of a One-Stop-Service Center under the FIFTA enabled the resolution of the matter in the course of just 3 days.

Of course, we receive complaints from the investors and the most frequently voiced concern has to do with numerous raids intended to check the activities of foreign invested companies engaged in production and provision of services, said Mr.Ganzorig.

The impact of FDI on Mongolia’s economy can be seen from the following figures. With the increase in the number of foreign invested companies, Mongolians have seen a creation of more than 70,000 new jobs and been able to upgrade their skills under the guidance of around 3,000 foreign managers and experts working in the country. In 2002, foreign invested companies produced 42% of Mongolia’s total exports and tax revenues they channeled into the state budget have been steadily increasing.

According to figures provided by the National Taxation Office, foreign invested companies paid a total of MNT 37,3 billion in taxes in 2002 alone. China tops the list of countries by the amount of its investment in Mongolia, followed by countries of North East Asia and North America. To be more precise, 37.9% of investors are Chinese companies, 13.2% are Canadian, 11.4% American, 8.1% South Korean, 6% Japanese and 3.3% are Russian companies. Investment in crude oil sector has been considered in drawing this list.

From a total of 3024 companies registered with the FIFTA, 60.4% are joint ventures, while the remaining 39.6% are companies with a 100% foreign ownership. In terms of location, 95.6% of all the registered companies are operating in Ulaanbaatar, while the other 4.4% with an investment of USD 43.7 million are situated in rural areas.

Estimates made by the FIFTA indicate a possible change in the sequence of top investors with North American investors likely to dominate the list as interest of such companies as Cameco Gold, Ivanhoe Mines, and Plaissner Dome in Mongolia’s mining and geological sectors is on the rise. Furthermore, according to the medium-term strategy plan drafted by the FIFTA, in 2005-2006 a total of half a billion USD will be invested in the country’s mining and infrastructure sectors. Mongolia’s construction sector is also experiencing an increased inflow of FDI as a result of coming into force of the Land Privatization Law in May 2003.

Date : 2004-05-31 17:23:47                        

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