Korea and Mongolia

Morning Calm Emerges Amid Blue Sky¹

Strong Ties. South Korea and Mongolia have been important diplomatic and trading partners in over the last 20 years. Mongolia sees South Korea as its “third neighbor” and is keen to expand its partnership with Asia’s fourth largest economy and diversify its trade away from its two largest trading partners - China and Russia. The partnership between Mongolia and South Korea has developed significantly since the two countries launched diplomatic relationships in 1990. South Korea has supported Mongolia in transition reforms to a market economy. In its turn, Mongolia plays an important role in improving relationships with North Korea, one of the major policy issues for South Korea.

Third largest trading partner. Mongolia’s trade with South Korea has almost quadrupled over the last decade and the Asia’s fourth biggest economy is now the third largest trading partner of the resource rich country after China and Russia. In addition, South Korea is the largest labor market for Mongolians. Estimates suggest that 38,000 to 40,000 Mongolian’s live in South Korea.

Korean Investors. South Korea is the 4th largest investor in Mongolia with total foreign direct investment (FDI) of over US$255mn since 1990, according to the Foreign Investment and Foreign Trade Agency of Mongolia (FIFTA). South Korea is also a key donor who has provided approximately US$137mn since 1990 in committed loans and grants to Mongolia. South Korean companies’ major investments and engagements include:

• Skytel: a JV with South Korean SK Telecom and Mongolian shareholders.
• Unitel Corp.: a 50/50 South Korean-Mongolian JV that started providing GSM services from 2006
• Mongolian Telecom: Korea Telecom bought 40% of the Company for US$4.5mn at privatization.
• Seoul Group: a property company with the first public luxury residential project in Ulaanbaatar
• Mongolian Development Bank: Korean Development Bank is expected to be hired as part of the management team to run this newly established Mongolian development institution.

Major South Korean companies including state-owned Korea Resources Corp, steelmaker Posco and Korea Electric Power Corp have bid to the Western Tsankhi coalfield, the largest area of the Tavan Tolgoi mine. The South Korean consortium is jointly bidding with Japanese and Russian companies. In March 2011, Lotte E&C-led South Korean consortium signed a preliminary deal with Mongolian Railways to build a 1,040-kilometer railway in Mongolia.

We believe Mongolia represents a unique investment opportunity for South Korean investors due to strong political support, favorable economic environment and attractive investment projects. We hold an optimistic view that South Korean investments in Mongolia will increase as investors seek to capitalize on the expected boom in this resource-rich country. Investors are expected to capitalize on significant growth in the Mongolian capital market and pursue private equity deals in both resource and non-resource sectors. Natural resources, infrastructure and property in Mongolia are key areas where we expect South Korean investors, operators and developers to be increasingly active in coming years.

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¹Korea is known as the land of the morning calm, an expression that comes from the ancient Korean dynasty of Koryo (918-1392). Koryo means high and clear.  Mongolia has been known as the land of eternal blue sky since the times of Chinggis Khan.