Mongolian Economy: Investment Opportunity /Challenges

Jim Dwyer, Executive Director of BCM

SLOWING BUT STILL GROWING ECONOMY

Source: National Statistic Office: Economic Report * - price compare with 2013.06

FOREIGN DIRECT INVESTMENT

Investment

Ministry of Economic Development (*) preliminary data

2010 2011 2012 2013-06

Total FDI inflow USD1,0bln USD4,9bln USD4,4bln USD1,4bln*

Number of countries 59 66 64 53*

Number of newly established entities

769 933 774 237*

Number of dissolved or deregistered as foreign invested companies

214 233 117 44*

GDP

Source: OT

How OT relates with FDI

Source: OT

FDI by Sectors in 2013.06.30

90.21

9.13

0.10 0.18 0.38

Geological prospecting, oilexploration & mining

Trade and catering service

Bank and financing service

Light industry

Source:Ministry of Economic Development

0.0

500,000.0

1,000,000.0

1,500,000.0

2,000,000.0

2,500,000.0

3,000,000.0

3,500,000.0

first 6 month 2012 first 6 month 2013

thous USD

Export Import

Total turnover of foreign trade

Source:Ministry of Economic Development

Ministry of Economic Development

-60

-40

-20

0

20

40

60

80

100

120

140

-60

-40

-20

0

20

40

60

80

100

120

140Ja

n-0

8

Ap

r-08

Jul-

08

Oct

-08

Jan

-09

Ap

r-09

Jul-

09

Oct

-09

Jan

-10

Ap

r-10

Jul-

10

Oct

-10

Jan

-11

Ap

r-11

Jul-

11

Oct

-11

Jan

-12

Ap

r-12

Jul-

12

Oct

-12

Jan

-13

Ap

r-13

Jul-

13

Exports

Imports

Sources: Mongolian authorities; and IMF staff estimates.

Imports and exports (Twelve-month percentage change in 3mma, Jan. 2008-July 2013)

Export by country

1 - 87.9%

2 - 3.7%

3 - 3.6%

4 - 1.4%

5 - 0.8%

6 - 0.5%

7 - 2.1% 1 - China 87.9%

2 - Canada 3.7%

3 - United Kingdom 3.6%

4 - Russian Federation 1.4%

5 - Italy 0.8%

6 - Federal Republic of Germany 0.5%

7 - Other 2.1%

Source: National Statistical office

Import by countries of origin

1 - 25.1%

2 - 23.5%

3 - 11.6%

4 - 7.8%

5 - 7.6%

6 - 3.5%

7 - 20.9%

1 - China 25.1%

2 - Russian Federation 23.5%

3 - United States of America 11.6%

4 - Japan 7.8%

5 - Republic of Korea 7.6%

6 - Belarus 3.5%

7 - Other 20.8%

Source: National Statistical office

Structure of export commodity

1. 26.8%

2. 20.0%

3. 17.3%

4. 10.0%

5. 6.7%

6. 3.7%

7. 1.8%

8. 0.8%

9. 12.9%

1 - Coal 26.80%

2 - Copper concentrates

20%

3 - Iron ores and concentrates

17.30%

4 - Crude oil. 10%

5 - Gold,unwrought or in semi-manufactured forms.

6.70%

6 - Zinc ores and concentrates

3.70%

7 - Leucite; nepheline and nepheline syenite; fluorspar.

1.80%

8 - Molybdenum ores and concentrates. 0.80%

9 - Other 12.90%

Source: National Statistical office

Structure of import commodity, (by HS Heading)

1. 21.2%

2. 7.3%

3. 6.4%

4. 3.1% 5. 2.1%

6. 2.0%

7. 1.6%

8. 1.4%

9. 54.9%

1 - Petroleum products. 21.20%

2 - Motor vehicles for the transport of goods. 7.30%

3 - Motor cars and other motor vehicles principally designed for the transport of persons . 6.40%

4 - Self-propelled bulldozers, angledozers, graders, levellers, scrapers, mechanical shovels, excavators,tamping machines and road rollers. 3.10%

5 - Machinery for sorting,screening,crushing,mixing earth. 2.10%

6 - Parts suitable for use solely or principally with the machinery. 2%

7 - Electrical apparatus for line telephony or line telegraphy. 1.60%

8 - New tyres. 1.40%

9 - Other 54.90%

Source: National Statistical office

As of Sep 24: USD vs MNT 1=1615.7

Source: BoM

1,570.43

1,200

1,300

1,400

1,500

1,600

08'1

2

09'1

2

10'1

2

11'1

2

01'1

3

02'1

3

03'1

3

04'1

3

05'1

3

06'1

3

07'1

3

08'1

3

Exchange rate

- to depreciate

- to appreciate

Type of Bond First Ever Government Sovereign Debt Bond

Issued Period November 2012

Credit Rating of Mongolia BB- (S&P)/ B1 (Moody’s)/B+(Fitch)

Volume of Bond $1,5 billion out of $5 billion

Period 5 years for $500 mln, 10 years for $1 bln

Registered Stock Exchange Singapore Stock Exchange

Coupon Rate 4.125% for 5 year bond

5.125% for 10 year bond

Investment Purpose To finance important projects in infrastructure and manufacturing

Chinggis Bond

Issuer Ammount

(US mm)

Coupon Maturity Price Yield

Mongolia (Chinggis) 2018 500 4.125 % 1/5/2018 90.500 6.714 %

Mongolia (Chinggis) 2022 1000 5.125 % 12/5/2022 82.500 7.828 %

DBM 2017 580 5.750 % 3/21/2017 91.500 8.622 %

Source: Citi, Bloomberg

Chinggis and DBM Bonds: As of Sep 20.2013

Projects Financed by the Chinggis Bond

e Chingiss Bond Projects Amount of Investment

Inter-aimag auto roads/1400 km/ MNT570 bln

Tavan tolgoi power station USD 50 mil

Engineering infrastructure in UB apartments USD 141.8 mil

“Street Project” in UB USD 200 mln

New railway project USD 200 mln

Support to cashmere industry MNT 95 bln

Milk and milk products factory USD 27.7 mil

Winter greenhouse USD 17.4 mil

Woolen products USD 45 mil

Textile industry USD 13.5 mil

State apartment corporation USD 100 mil

Iron ore dressing factories USD 50 mil

"MIAT" "Boeing 767-300EK" USD 25 mil

Source:Ministry of Economic Development

Key legislation -Foreign Investment Law 1993

-Foreign Investment in Entities in the May 2012 and Strategic Sectors (SEFIL) and its regulations March 2013 -Minerals law 1997, 2006

-“Long named” law 2009 -Windfall tax law 2007

-Securities law 2004, 2013

-Corp Income tax (CIT) 2008

-Personal Income Tax (PIT) laws 2008

-Value added Tax (VAT) 2008

АНХААРАЛ ТАВЬСАНД БАЯРЛАЛАА

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