President Elbegdorj met Myanmar President Thein Sein. Mongolian President Tsakhiagiin Elbegdorj met with his Myanmar counterpart Thein Sein during his visit to the Southeast Asian country in November 18-20. This is the first ever visit of the Head of State of Mongolia to Myanmar since the two countries have established diplomatic relations in 1956. “I believe that this state visit will give a strong impetus to expanding our bilateral relations and cooperation, especially in social, economic, trade, industry and cultural sectors.” said Myanmar President Thein Sein at the meeting in Naypyidaw, the capital of Myanmar. Read more
Economic growth remains high. The rate of GDP growth accelerated to 11.5% y-o-y in 3Q2013 from 9.6% y-o-y a year earlier, the National Statistics Office (NSO) data revealed on November 11. This is the highest rate of this year compared to 7.2% y-o-y in 1Q2013 and 11.3% y-o-y in 2Q2013. Government spending in infrastructure and private consumption were the key drivers of the growth that outpaced substantial decline in foreign investments and exports. Read more
Historic visit. President of Mongolia Ts.Elbegdorj arrived in Pyongyang, the capital of North Korea, to start official visit to the country on Monday 28th October. Ts.Elbegdorj became the first foreign state head to visit the world’s most isolated country since the accession to power of Kim-Jong-un in 2011. During his stay, the Mongolian President will meet leaders and officials of North Korea, sign mutual cooperation agreements and share opinions on aspects of bilateral, regional and international relations. “The visit of the Mongolian President and delegates is accentuated by 65th year of diplomatic relations between Mongolia and North Korea” reported the Ministry of Foreign Affairs of Mongolia. It is expected that Kim-Jong-un may meet with Ts.Elbegdorj during his stay. Read more
Incumbent President Wins. Current President Tsakhia Elbegdorj, the Democratic Party nominee, won the Mongolian Presidential Elections of 2013 held yesterday (Wednesday, 26 June) and was re-elected with 50.23% of the total votes, defeating both Mongolian People's Party candidate, Parliament Member B.Bat-Erdene (41.97%) and Mongolian People's Revolutionary Party nominee, Minister of Health N.Udval (6.58%). Chairman of the General Election Commission Ch.Sodnomtseren announced the final results today (Thursday, 27 June). Elberdorj’s re-election keeps the Democratic Party in power both in the presidency and Parliament. Under his presidency since 2009, the Elbegdorj’s administration has brough significant transformations in the political, economic and social lives of the Mongolian people. In our view, during the next term the course his office has taken is expected to maintain and the pre-election promises he made to be implemented. Read more
ORIX Corporation Announces Capital Participation in TenGer, Major Mongolian Financial Group. ORIX Corporation (TSE: 8591; NYSE: IX) announced yesterday that it reached an agreement to buy approximately 16% interest in the TenGer Financial Group, one of the major financial services holding companies in Mongolia. The deal, estimated to worth US$24mn (valuing TenGer at US$150m), is expected to be finalized in June, 2013. Orix will become the third largest shareholder in the TenGer Financial Group. Orix aims to expand into the Mongolian financial services business in strategic partnership with the TenGer Group. The investment will help TenGer to strengthen its existing businesses.
ORIX in Mongolia. In February, 2013, Orix Corp. announced capital commitment to Mongolia Opportunities Fund, a $50m private equity fund established in 2011. At the time of its investment commitment to this fund, Orix stated its interest in investing in the banking sector in Mongolia. Read more
Economic growth slowing. The pace of economic expansion substantially slowed down with GDP growth rate of 7.2% y-o-y in 1Q2013 from 17% y-o-y a year earlier, the National Statistics Office of Mongolia (NSO) data revealed on May 13. This is the lowest rate since 1Q2011 and significantly below compared to 12.2% y-o-y in 2012 and 17.3% y-o-y in 2011 on full year basis. Poor natural resource exports both in terms of low physical volume and selling prices driven by weakened demand in China, the largest buyer of Mongolia’s minerals, and shrinking FDI hit by foreign investment-unfriendly laws and regulations have affected the pace and scale of economic activities.
Weak export demand and international prices. Foreign trade shrank 12.2% y-o-y in the first four months of 2013 as exports and imports contracted 5.6% y-o-y and 16.3% y-o-y. Exports of coal, the largest contributor to inflow of foreign trade revenue, plunged 41.6% y-o-y in value as selling prices to the largest customer, China, has shrank substantially. The dispute between Mongolian SOE Erdene Tavan Tolgoi (ETT) and Chalco over coal off-take arrangement that resulted in suspending the coal supply from Tavan Tolgoi coal field to the Chinese SOE added difficulties on the export performance. However, a positive outlook in favor of exports re-appeared as ETT and some privately held mining companies including Mongolian Mining Corp. resumed coal transportation at the end of the last month. The possible increase in physical volume of coal exports may support the stream of export revenues should selling prices remain flat. Read more
Parliament lifts some restrictions. On April 19, 2013, Mongolian Parliament passed amendments to controversial Strategic Sectors Foreign Investment Law (SSFIL) that was adopted in May last year. The new amendment aims to ease restrictions and create more favorable conditions for foreign investors. Parliamentary approvals for foreign non-state owned companies and threshold of MNT100bn (US$70mn) have been removed. The investments of state owned or state participated companies will still need parliamentary approval in case the investment exceeds 49% stake. “Today’s change only applies to parliamentary reviews for non state-owned foreign companies and doesn’t remove the need for both state and private companies operating in strategic sectors to get approval from the government, prime minister and his cabinet for investments” said Chimed Saikhanbileg, the government’s cabinet secretary. Read more
Further strengthening ties. Japanese Prime Minister Shinzo Abe met Mongolian President Ts. Elbegdorj, Prime Minister N. Altankhuyag and Parliament Speaker Z. Enkhbold during his official visit to Mongolia on 30-31 March this year. The visit which is the first for the past seven years was aimed at further strengthening bilateral relations between the two long-time partner nations. The Abe led cabinet is seeking to expand and deepen the cooperation with Mongolia in a broad range of issues – politics, economy and business, as the Japanese government sees in Mongolia a country that has massive natural resources and “shared democratic values”. Read more
Mongolia’s GDP Accelerates 16.7% in 1Q2012
Accelerating economy. In 1Q2012, the Mongolian economy had its best first quarter in a decade. The economy registered an outstanding GDP growth rate of 16.7% y-o-y in 1Q2012, the National Statistics Office of Mongolia data revealed on 10 May. In nominal terms GDP growth rate stood at 30.2% y-o-y. The growth is driven by the mining sector, commodity exports and government spending. Industry and construction expanded 8.4% y-o-y in real terms, services 18.6%, agriculture 13.6%. Economic growth in first quarter is traditionally somewhat slow as the activities are subdued in mining, construction, agriculture and some other sectors. In 2011, the economy expanded 9.8% in 1Q and accelerated to 17.3% y-o-y by the year end.
Continued strength of mining sector. Industry and construction contributed 15.7% to GDP growth. Mining sector output, the largest component (68%) in industrial output advanced 10.1% y-o-y. Coal output surged 10.3% to almost 10 mn tonnes (Mt), crude oil +59.8% to 1.1mn barrels, iron ore +44% to 1.5Mt, zinc concentrate 24.6% to 43,100 tn.
Resource exports hitting new peaks. Mongolia’s export growth continued to be in line with our call that Mongolia is to benefit from strong demand for resources in major Asian economies, primarily China, and competitive commodity prices. Mongolia’s mineral exports that reached 94% share of total exports surged 20% y-o-y (vs total exports +19.1%) and contributed a 98% y-o-y increase in total exports in 1Q2012. Coal exports jumped +81% in monetary terms, iron ore +43% and crude oil +63% while copper was down 18%. Coal exports in physical volume increased 466,300 tn to 3.4Mt and average export price surged 56% y-o-y to US$108/tn. China remained the largest export market for Mongolia. Exports to China surged +24% y-o-y representing 92% of Mongolia’s total exports (vs 89% a year earlier).
Rising government spending. The government budget revenue increased 20.9% y-o-y to MNT1,474.7bn. Tax revenue increased 21.5% to MNT1,300.3bn. The government accumulated MNT8.9bn in Stabilisation fund. With expenditure growing at a faster 31.7% rate to MNT1,513.8bn, the general government budget registered MNT39.1bn or 1.7% of GDP deficit. Capital expenditure doubled to MNT255.4bn, including domestic investments of MNT248.3bn, government consumption increased 27.2% y-o-y to MNT215.3bn. Wages and salary payments were up 28% to MNT322.4bn, one of the key reasons for the high inflation.
Inflation remains a concern. Inflation reached outrageous 16% y-o-y in April. Inflation accelerated 8.2% y-t-d in 4M2012 vs 2.5% a year earlier. In supply side, meat price increase caused by decline in production has been significantly contributing to the inflation. Also, inflation has been imported through increased prices of oil products, construction materials and other products. In demand side, state cash handouts are permanently fueling consumer demand, and increasing state sector salary also has the same effect. The demand is expected further to increase as the State is giving every person a choice to receive MNT1mn in cash instead of 1,072 shares of Erdenes Tavan Tolgoi. It is expected that the central bank may further tighten the monetary policy.
New law on foreign investment may impact economic growth. We are increasingly concerned that the new draft law on regulation of foreign investment in business entities of strategic importance may negatively impact the foreign investment inflows to the country. Although the latest draft has been significantly softened from the first version, we expect that that there is a common consensus among MPs to impose additional regulation on foreign investments coming to the sectors and entities of “strategic importance” (mining, financial, media and communications). Although a number of key restrictive proposals (extensive list of “strategic industries”, over MNT100bn worth company subject to the regulations) were removed, the business and investment community views the law as impediment (in particular the provisions that limit foreign ownership to 49% in business entities in the strategic industries) to bringing foreign investments to Mongolia and sustaining strong economic growth of the country.
In our view, if the new law on regulating foreign investments in strategic industries is adopted in its current form (which is restrictive, in our view), this may impact inflows of foreign investments and economic growth as a whole. The new regulation may affect the current speed of output by key resource producing companies, the government revenues and private consumption, therefore, our estimate of 20% growth rate in 2012, articulated in Eurasia Capital Mongolia Outlook 2012 at the beginning of this year, may not be reached. We are also concerned that the recent arrest of the ex-president leads to increase in political risks in the country and negatively impacts investor sentiments toward Mongolia. We expect more clarity as to the business environment of the country after the lawmakers adopts the legislation and the Parliamentary elections are held in June this year.
Mongolia Outlook 2012. World’s Fastest Growing Economy
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