30.10.2013 Mongolian economy: Investment opportunities/challenges, Jim Dwyer

Mongolian Economy: Investment Opportunities /Challenges

Jim Dwyer, Executive Director, Business Council of Mongolia

SLOWING BUT STILL GROWING ECONOMY

Source: National Statistical 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


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)

Exports 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

Imports 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%


Structure of export commodities

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%


Structure of import commodities

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%


As of Oct 21: USD vs MNT 1=1697.5

Source: BoM

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 Yield

9/20/2013

Yield

10/20/2013

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

5.715%

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

6.827%

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

6.898%

Source: Citi, Bloomberg

Chinggis and DBM Bonds:

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


Key Legislation -Foreign Investment Law 1993

-Foreign Investment in Entities in the May 2012 and Strategic Sectors (SEFIL) and its regulations March 2013 - Investment Law October 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

MONGOLIAN INVESTMENT CLIMATE

RECENT RESULTS - Bleak WHAT'S AHEAD - Potential significant and sustainable recovery - Key legislation: Investment Law (effective Nov 1, 2013) Securities Law (effective Jan 1, 2014) - 16 month "Election Period" concluded - Infrastructure focus - High rates of GDP per capita, similar to Gulf states - Mining sector driver of growth; Significant investment transactions

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