03.09.2015 foreign direct investment trend and mongolia (1)

FOREIGN DIRECT INVESTMENT

TREND AND MONGOLIA

JAVKHLANBAATAR SEREETER DIRECTOR GENERAL

INVEST MONGOLIA AGENCY

FOR “DISCOVER MONGOLIA 2015”

Ulaanbaatar 2015.09.03

Business Freedom in the Mining Industry

Global Outlook

Investment Legal environment

Mining and PPP projects

Content

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GLOBAL INVESTMENT TREND

1. Global FDI inflows declined by 16% in 2014. The reason for decline: 1. Fragility of the global economy, 2. Policy uncertainty for investors and 3. Elevated geopolitical risks.

2. Inward FDI flows to developing economies reached their highest level with 2% rise.

Among the top 10 FDI recipients, China became the world’s largest and 5 are developing economies.

3. The low level of flows to developed countries persisted in 2014. Despite the revival in cross border M&As overall FDI flows of developed countries

declined 28%. They were significantly affected by a single large-scale divestment from the US.

4. Investments by developing-country multinational enterprises reached a record level: developing Asia now invests more than any other region.

9 of the 20 largest investor countries were from developing or transition economies.

5. Announced Greenfield investment declined by 2% Developing countries continued to attract 2/3 of announced Greenfield investments.

Source: UNCTAD Policy Review, April 2015

Business Freedom in the Mining Industry Source: UNCTAD Global Investment Trends Monitor, April 2015

Developed Economies Developing and transition economies

Top 20 investors in 2014 (billions of USD )

Landlocked Asian Countries’ comparison in 2014 (millions of USD)

337

150

116

114

112 56

56

53

41 41

32 31

31 19

17 16 13

13 13 12


REGIONAL INVESTMENT TREND

1. African FDI inflows remained flat

- The services share in Africa FDI is still lower than the global and developing country average

2. Developing Asian FDI inflows grew by 9% to its historically high levels

- FDI inflows to East and South East Asia increased by 10%.

- MNEs have become a major force in enhancing regional connectivity in the sub region, through cross border investment in infrastructure.

3. South American FDI inflows decreased after 4 years of consecutive increases.

- This is mainly due to a decline in cross-border M&As in Central America and Caribbean and to lower commodity prices.

4. Developed countries’ FDI inflows fell by 28%.

- Burgeoning FDI income is providing a counterbalance to trade deficit, particularly in the US and more recently in Japan.



• Measures geared towards investment liberalization, promotion and facilitation.

• Countries and regions continue their search for reform of the international investment agreements regime.

• Developed countries encourage their MNEs to invest in their home countries.

Global FDI recovery is in sight: FDI inflows are projected to grow by

• 11% to $1.4 trillion in 2015,

• $1.5 trillion in 2016

• $1.7 trillion in 2017.

Mongolia continuously gear up investment liberalization, promotion and attraction by offering smooth business environment, and generous fiscal

and regulatory incentives while promoting to mega infrastructure and industrial projects as well as diversified investment.


INVESTMENT POLICY TREND


1. China overtook both the US and Japan more than a decade ago to become Emerging Asia’s largest export destination.

- Asian exports to China contracted around 4.6% in the first quarter of 2015.

- Weaker China demand has translated into lower commodity prices which impact the commodity exporters, including Mongolia.

1. China’s growth slowdown hits Asia via lower FDI.

- However, China’s structural slowdown is driving outbound investments into the rest of Asia.

2. Trade links with China are highest for the Northeast Asian economies, especially Mongolia.

- Trade links: Hong Kong 88% of GDP, Taiwan 15%, Korea 10% and Mongolia 90% of its GDP. This means Mongolia would hurt a lot from dependency of its trade.

WHEN IT COMES TO COMMODITY, CHINA MATTERS…

Source: Bank of America, June 9 th 2015


Global Outlook

Investment Legal environment


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Seoul convention establishing the Multilateral Investment Guarantee Agency

Washington convention on the Settlement of Investment Disputes

Foreign Investment Protection and Promotion agreements with 43 countries

Tax treaties with 30 countries

Mongolia-Japan Economic Partnership Agreement/First FTA/

Process of accession to APTA

INTERNATIONAL LEGAL FRAMEWORK

Discussing to enter bilateral and multilateral agreements and actively participates in the process of regional integration.


INVESTMENT LEGAL ENVIRONMENT

Investment Law highlights:

No approval to enter into market and buy a local company

No discrimination between Foreign and Local company

Fast incorporation process

Stability guarantees

More liberalized and generous incentives

Investor friendly

Special designated agency for investors


On April 29th 2014 “Mongolian Foreign

investment Policy Review” report drafted

jointly by Government of Mongolia and

UN conference on Trade and

Development /UNCTAD/ was presented

at the UNCTAD member countries

intergovernmental meeting.

Investment policy review Trade policy review

The second review of the trade

policies and practices of Mongolia

took place on 24 and 26th of

September 2014. The basis for the

review was a report by the WTO

Secretariat and a report by the

Government of Mongolia.

Business Freedom in the Mining Industry 12

INVESTMENT INCENTIVES

• If more than 500

billion MNT (US$

~300mln)

Investment

Agreement

• First 5 years tax

free Economic Free

Zones

• Customs

Duty, VAT

free

SMEs

•VAT

•Corporate

Income Tax

Stabilization Certificate

FISCAL AND REGULATORY INCENTIVES

No import duty for machines and equipment of manufacturing, processing and industrial facilities

Incentives for training

Multiple and permanent visas for investors – No Visa regime with over 40 countries

Land lease for development projects

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EVALUATION OF INT’L ORGANIZATIONS ON MONGOLIA’S PERFORMANCE

China Kazakhstan

Russia Mongolia

Business Freedom 52.1 73.7 70.0 68.2

Trade Freedom 71.8 79.0 75.0 74.8

Investment Freedom 25.0 40.0 25.0 50.0

Global Competitiveness- Ranked at 98th

World Bank- Doing Business Report

Attracting Foreign Investment- Mongolia is ranked overall at 78th out of 135 nations

Source: Global Opportunity Index 2015, WEF, 2014-2015, Heritage Foundation and The Wall Street Journal

Note: 100 score represents the freest

Economic Freedom Index-Mongolia is the 96th freest country out of 186



• Sector diversification

• Geographical diversification

• Source country diversification

Managing stakeholders interests

More favorable condition

• Synergy between government institutions

• Capacity building program

• Social program to promote a positive impact of FDI

Diversification

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Protection

• One stop online services

• Aftercare services

• Grievance management mechanism

• Reduce procedural barriers

• Incentives

Financial Incentives

Fiscal Incentives

Regulatory Incentives

MONGOLIA’S EFFORT TO ATTRACT FDI


Global Outlook

Investment Legal Environment


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GAIN/LOSS INDEX OF IPO COMPANIES /2010-2014/ Total 37 companies with IPO on markets, those registered in Mongolia as a foreign

investor. During 2010-2014, 11 companies gained profit, 22 of them showed loss.

5

32

0 10 20 30 40

Gain

Loss

Income growth

< 0.0%, 20

Income growth

> 0.0%, 17

15 16 17 18 19 20 21

Stock indices of selected companies /2010-2015/

Source: Invest Mongolia Agency, 2015


AVERAGE EARNING/LOSS PER SHARE OF TOTAL COMPANIES /2010-2014/

0

10

20

30

Earning pershare

Loss per share

7

30 Earning per

share >1.00$

48.2%

Earning per share 0.00$ :

1.00$

42.8%

Loss per share

< -1.00$

17%

Loss per share -0.00$

to -1.00$

83%

Companies with Earning per share /EPS/ - Centerra Gold - Rio Tinto - BANPU /Hunnu Coal - Peabody Energy Corp - Carajas Copper Company/Voyager

Resources - Central Asia Metals - Manas Petroleum

Source: Invest Mongolia Agency, 2015


Investment Agreement

• Oyu Tolgoi

• Tavan tolgoi- ongoing

• 1 more proposal on a copper deposit

Stabilization Certificate

• Awarded to

• 1 coal mine company

• 1 Iron mine company

MINING PROJECTS SEEKING LEGAL SUPPORT


CONCESSION PROJECTS SIGNED

Industrial and Infrastructure projects 1. Mining and Metallurgy Complex Construction Project, Contract: $725 million

2. Oil Refinery Plant Construction in the East Region

3. State Reserve Storage Project in Rashaant Contracts : $55 million

4. Nariinsukhait-Shiveekhuren Road project, Contract: MNT 109 billion

5. Railway from Erdenet city to Ovoot Mining, Contract: $1.3 billion

Energy projects 1. Baganuur Power Plant Contract: $900 million

2. Chandgana Power Plant and Baganuur to

Undurkhaan Electric Transmission Line Construction Project

3. Tevshiin Gobi Power Plant Project in Saintsagaan soum in Dundgobi

Thank you for your attention

Web: www.investmongolia.com

Phone: +976-11-320706, 310599

Email: [email protected]

@investmongolia

http://www.investmongolia.com/

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