Mining Sector and Vision 2050

Mongolia’s financial system is closely reliant on its mining sector, which contributes considerably to its GDP and exports. Nevertheless, the federal government is actively working in the direction of diversifying the financial system and attracting international funding in different sectors. Because of this, there are a number of promising industries and main developments that companies and buyers can discover along with the mining sector. On this regard, we provide insights into these alternatives that can assist you make knowledgeable choices.

Mongolia is wealthy in pure sources and has traditionally attracted important international funding in its mining sector. Based on information from the World Financial institution, the mining sector accounted for roughly 22 p.c of Mongolia’s GDP in 2021, and over a staggering 80 p.c of the nation’s exports. Thus, the significance of mining to the Mongolian financial system can’t be overstated, because it has been a key driver of financial progress.

Nevertheless, this heavy reliance on the mining sector has additionally made the nation susceptible to fluctuations in international commodity costs, as seen through the latest downturn within the international mining business itself. In response to this vulnerability, the Mongolian authorities has been working to diversify its financial system and entice international funding in different sectors, together with agriculture, tourism, and renewable vitality.

Regardless of these efforts, the mining business nonetheless stays the biggest contributor to the Mongolian financial system. The nation is residence to a number of large-scale mining operations, together with the Oyu Tolgoi copper and gold mine, which is collectively owned by the Mongolian authorities and international mining big Rio Tinto. The mining business has additionally attracted investments from different main gamers worldwide, together with Chinese language, Canadian, and European ones.

In April 2022, the federal government launched its so-called Revival Technique which incorporates furture plans (Imaginative and prescient 2050) specializing in a revamp of six areas that want “restoration”: port, vitality, industrial, city and rural, inexperienced progress, and State productiveness.

On this article, we are going to focus on the mining sector in Mongolia, together with its present state and future prospects. We may also discover the top-five industries and buyers within the nation, with an emphasis on diversification in international direct funding (FDI).

Mongolia’s mining sector at a look

Mongolia has been recognized by the Worldwide Financial Fund (IMF) as one of many 29 growing international locations which can be wealthy in pure sources, and the exploration of coal and copper deposits is producing a major quantity of additional income. Mongolia primarily mines coal, copper, and gold.

There are numerous gold mines located roughly 110 kilometers north of Ulaanbaatar, such because the Boroo Gold Mine and Gatsuurt Gold Mine. Moreover, the Khotgor Coal Mine, an open-pit coal mining web site, could be discovered about 120 kilometers west of Ulaangom. Moreover, there are important mining tasks within the south of Mongolia, significantly within the Ömnögovi Province, together with the Tavan Tolgoi coal mine and the Oyu Tolgoi copper mine.

The mining business is an important side of Mongolia’s financial system and a major contributor to its progress, comprising 21.6 p.c of the nation’s GDP, 57 p.c of general industrial manufacturing, and 42 p.c of complete investments in 2020.

Mongolia’s mining output primarily revolves round copper, gold, coal, and iron, and was liable for 26 p.c of the nation’s finances income in 2020. Though Mongolia additionally has a small oil and fuel business, these sources haven’t been adequately exploited. The common mining manufacturing in Mongolia between 2010 and 2023 was 16.09 p.c, with a peak of 161.00 p.c in April 2021 and the bottom document of -39.60 p.c in March 2022.

Regardless of the apparent financial challenges that arose as a consequence of the COVID-19 pandemic, consultants predict that Mongolia’s financial outlook stays favorable as a result of rising demand for coal and copper from China and elevated mining operations. The nation has a wealth of untapped pure sources and has established a Sovereign Wealth Fund (SWF) to handle rising revenues from mining exports. Mongolia plans to take a position over US$392 million right into a Future Heritage Fund yearly as a part of its general financial progress technique.

Prime buyers in Mongolia’s mining sector

Whereas it needs to be famous that whereas Chinese language funding is critical in Mongolia’s mining sector, it isn’t the one investor. Mongolia has been looking for to diversify its sources of funding to scale back its dependence on China.

The Mongolian authorities has additionally been actively selling international funding in different sectors, reminiscent of tourism and agriculture.

Japan

Japan is likely one of the largest buyers in Mongolia, with a major presence within the mining sector. Japanese firms, reminiscent of Sumitomo Metallic Mining and Mitsui & Co, have been concerned within the growth of copper and gold mines within the nation. These firms have invested billions of {dollars} in Mongolia’s mining business, contributing to the sector’s progress and creating job alternatives for locals.

In addition to mining, Japanese buyers have additionally been concerned in different sectors of the financial system. In 2011, Japan and Mongolia signed a memorandum of cooperation within the subject of vitality, then up to date in 2015 and 2018, with the intention to advertise the event of renewable vitality in Mongolia. Japanese buyers have additionally been energetic in infrastructure growth, significantly within the transportation sector.

South Korea

South Korea has been investing in Mongolia’s mining sector, in addition to in infrastructure growth. Korean firms, reminiscent of SK Telecom and LG, have been concerned within the growth of Mongolia’s 5G community and the development of a gas-fired energy plant in Ulaanbaatar.

South Korea has additionally been concerned within the growth of the Oyu Tolgoi copper-gold mine, one of many largest mining tasks in Mongolia. South Korean banks, together with Kookmin Financial institution and Woori Financial institution, have offered financing for the challenge.

The European Union

The European Union has offered growth help to Mongolia, and it has additionally invested within the nation’s mining sector. The EU has been concerned in tasks to enhance the regulatory setting and governance within the mining business, in addition to in infrastructure growth.

In 2019, the EU introduced a brand new program to assist sustainable mining in Mongolia. This system goals to advertise accountable mining practices, enhance the regulatory setting, and assist the event of native communities affected by mining actions.

United States

The US has invested in Mongolia’s mining sector, significantly within the growth of coal mines. Peabody Power, one of many world’s largest coal firms, has been concerned within the growth of the Tavan Tolgoi coal mine in Mongolia. The US has additionally offered help in different areas, reminiscent of schooling and public well being.

In 2020, the US authorities introduced a US$350 million financing bundle to assist infrastructure growth in Mongolia. The bundle consists of funding for the development of a brand new airport in Khushig Valley, which is anticipated to spice up tourism and commerce within the area.

Canada

Canada has invested in Mongolia’s mining sector, significantly within the growth of the Oyu Tolgoi copper-gold mine. Canadian firms, reminiscent of Turquoise Hill Sources and Rio Tinto, have been concerned within the growth of the mine, which is anticipated to provide greater than 500,000 tons of copper per 12 months.

In addition to mining, Canadian buyers have additionally been concerned in different sectors of the financial system. In 2017, Canada and Mongolia signed a memorandum of understanding to advertise cooperation within the fields of agriculture, vitality, and mining.

New developments and alternatives for international buyers in Mongolia’s mining sector

Go inexperienced and digital

To scale back the environmental affect of mining operations, Mongolian mining firms are more and more contemplating inexperienced and digital options. This consists of implementing measures to enhance vitality effectivity, cut back carbon emissions, and undertake waste administration options. The nation’s largest mining challenge, Oyu Tolgoi, managed by Rio Tinto, has dedicated to decarbonizing its operations, which would require the adoption of inexperienced and digital options.

Mineral exploration

As mineral exploration actions are anticipated to extend in Mongolia, there will likely be a rising demand for providers associated to geological exploration, drilling, and different associated actions. This demand creates a chance for firms specializing in mineral exploration applied sciences. Moreover, there’s a want for sustainable mine closure options, as all the life cycle of mines is now thought of an integral a part of all mining operations.

Enchancment of mining websites

Mining firms in Mongolia are additionally looking for to enhance productiveness and effectivity on mine websites whereas decreasing prices. Canadian mining service and provider firms have alternatives to supply options for mining web site productiveness. Moreover, there’s a want for capability constructing and coaching of native workers, which presents alternatives for firms specializing in security coaching and capability constructing.

The regulatory setting and authorities insurance policies

The Mongolian authorities has carried out insurance policies to encourage international funding within the nation’s financial system. The federal government has handed a number of legal guidelines and rules to enhance transparency and governance within the mining business, such because the amended 2017 Minerals Legislation and the ‘Imaginative and prescient 2050’ Lengthy-Time period Improvement Coverage

The federal government has additionally taken important steps to safeguard and advance the nation’s growing mining sector. The China-Mongolia-Russia Financial Hall (CMREC) is an initiative aimed toward selling commerce between Mongolia and its neighbors and enhancing infrastructure connectivity and regional financial integration. When accomplished, the CMREC will place Mongolia as an important hyperlink in newly strengthened commerce networks between the East and West, introducing new export routes and decreasing freight instances. The Mongolian authorities has additionally invested within the enlargement of railways and the constructing of greater than 6,000 kilometers of roads.

Based on the 2022 World Funding Report from the United Nations Convention on Commerce and Improvement, Mongolia acquired greater than US$2.6 billion of FDI in 2021, a notable enhance from the earlier 12 months.

Different promising sectors in Mongolia’s financial system

Regardless of experiencing a 4.4 p.c decline in progress as a result of affect of the COVID-19 pandemic, Mongolia’s financial system regained momentum within the following two years, reaching a 2.2 p.c progress in 2022. Specialists estimate the nation will achieve a 4.5 p.c progress by the tip of 2023.

In addition to the mining sector, Mongolia’s financial system additionally will depend on promising sectors, reminiscent of agriculture, building, providers, and manufacturing.

Agriculture

The agriculture sector in Mongolia is an important contributor to the nation’s financial system, accounting for round 10 p.c of its GDP and offering employment for almost a 3rd of the inhabitants. Regardless of having huge tracts of fertile land and plentiful water sources, the sector faces important challenges reminiscent of restricted market entry, local weather change, and inadequate infrastructure. Nevertheless, the federal government has launched varied insurance policies to encourage the sector’s progress, together with subsidies and credit score for farmers and investments in irrigation techniques.

Livestock farming dominates the sector, making up round 90 p.c of its complete output. Mongolia has one of many largest livestock populations globally, with over 66 million livestock, and is famend for its conventional nomadic herding practices nonetheless prevalent in rural areas.

Building

Mongolia’s building sector has been quickly rising in response to the demand for infrastructure and housing growth. In 2021, the dimensions of the development market in Mongolia was assessed at US$2.2 billion. It’s predicted to expertise an Common Annual Development Charge (AAGR) of over 4 p.c between the years 2023 to 2026.

As well as, the federal government has carried out a number of insurance policies to encourage the expansion of the sector, such because the nation’s Funding Legislation, which offers tax incentives for building tasks.

Providers

The service sector in Mongolia is comparatively small, accounting for roughly 20 p.c of the GDP. Nevertheless, it has been rising lately, with the federal government figuring out tourism as a possible progress space for the sector.

Mongolia’s distinctive tradition and pure landscapes supply important alternatives for tourism growth. Based on the World Journey and Tourism Council, the Mongolian tourism sector’s direct contribution to GDP has grown by 5.5 p.c per 12 months till 2029.

Manufacturing

The manufacturing sector in Mongolia is comparatively small, accounting for roughly 5 p.c of the GDP. In 2021, the nation’s manufacturing output noticed an increase of 5.25 p.c in comparison with the earlier 12 months, reaching a complete of US$1.09 billion.

Diversification of FDI in Mongolia

The diversification of FDI is a important element of Mongolia’s long-term financial technique. Diversifying the sources and sorts of FDI will assist the nation obtain sustainable progress and cut back its reliance on the mining sector, which at the moment accounts for a good portion of FDI.

Diversifying FDI sources and sectors is essential for Mongolia’s financial progress and stability. The over-reliance on the mining sector has made the nation susceptible to exterior shocks, reminiscent of fluctuations in commodity costs and the COVID-19 pandemic. Diversification would cut back the chance of financial instability and be sure that Mongolia is best capable of climate financial downturns.

Furthermore, diversifying FDI would permit Mongolia to leverage its different strengths and aggressive benefits. For example, Mongolia has plentiful renewable vitality sources, huge agricultural land, and a wealthy cultural heritage that might entice funding within the tourism business.

The present state of FDI in Mongolia

Mongolia has been profitable in attracting FDI lately, with FDI inflows reaching a document excessive of USD 2.3 billion in 2019. The mining sector continues to be the first recipient of FDI, accounting for over 80 p.c of the overall FDI in 2020. China is the biggest investor in Mongolia, adopted by Canada, Russia, and the USA.

The focus of FDI within the mining sector has led to a major affect on the nation’s financial system, with the mining business accounting for 22 p.c of Mongolia’s GDP in 2021. The mining sector’s reliance on just a few key commodities, reminiscent of coal and copper, additionally poses dangers to the nation’s financial stability in the long term.

Moreover, the COVID-19 pandemic has had a extreme affect on Mongolia’s financial system, with FDI inflows dropping by 41 p.c in 2020 in comparison with the earlier 12 months. The decline in FDI has highlighted the necessity for Mongolia to diversify its FDI sources and sectors to mitigate the results of exterior shocks on the financial system.

Sectors with potential for FDI

Mongolia has a number of sectors apart from mining which have the potential for attracting FDI. These sectors embody agriculture, tourism, and renewable vitality.

Agriculture is a major sector for Mongolia, contributing round 14 p.c to the nation’s GDP. Mongolia has huge tracts of fertile land and a perfect local weather for livestock and crop manufacturing, making it a beautiful vacation spot for funding in agriculture.

Tourism is one other sector with large potential for FDI. As much as 2019, tourism performed a major function in boosting Mongolia’s financial system, representing 7.2 p.c of its GDP, 6.8 p.c of its complete exports, and seven.6 p.c of its complete employment, making it essentially the most affluent 12 months on this business. Nevertheless, in 2020, the COVID-19 pandemic induced tourism to say no dramatically.

Mongolia has a singular cultural heritage and beautiful pure landscapes, making it a well-liked vacation spot for eco-tourism, journey tourism, and cultural tourism. The federal government has been investing in growing infrastructure and selling the sector, creating alternatives for international buyers.

Renewable vitality holds important potential for FDI as effectively. Mongolia has plentiful wind, photo voltaic, and geothermal sources that may very well be harnessed to fulfill the nation’s vitality wants and even exported to neighboring international locations. The federal government has launched insurance policies and incentives to draw funding in renewable vitality, creating a positive setting for international buyers.

Authorities efforts to draw diversified funding

The Mongolian authorities has carried out a number of insurance policies and initiatives to advertise the diversification of FDI and entice funding in sectors apart from mining. These insurance policies embody tax incentives, funding promotion, and the institution of particular financial zones.

Tax incentives are one of the vital efficient methods to draw FDI. The Mongolian authorities has launched tax exemptions and reductions for buyers in precedence sectors reminiscent of agriculture, renewable vitality, and tourism. The federal government has additionally lowered the company revenue tax fee from 25 p.c to 10 p.c for small and medium-sized enterprises (SMEs) working within the non-mining sector.

Funding promotion is one other technique utilized by the federal government to draw FDI. The federal government has established the Funding Company of Mongolia to advertise funding alternatives within the nation and supply assist and steering to buyers. The federal government has additionally participated in worldwide funding boards and roadshows to showcase funding alternatives in Mongolia.

The federal government has additionally established particular financial zones (SEZs) to advertise funding in particular sectors. For instance, the Sainshand Industrial Park is a particular financial zone targeted on growing renewable vitality, gentle business, and logistics.

Regardless of these insurance policies, diversification of FDI stays a problem for Mongolia. The mining sector continues to dominate FDI inflows, and the non-mining sectors face a number of challenges, reminiscent of insufficient infrastructure, lack of expert labor, and restricted entry to financing.

Conclusion

In abstract, Mongolia’s financial system and mining sector maintain immense potential for buyers seeking to leverage the nation’s plentiful mineral sources and quickly rising financial system. Though there are some obstacles, reminiscent of political instability and infrastructure limitations, the federal government’s dedication to encouraging international funding and enhancing the funding setting, mixed with the nation’s ample pure sources and strategic place, make it an interesting funding vacation spot.