General Director of Foreign Investment Policy and Regulation Department at Ministry of Economic Development S.Javkhlanbaatar answered questions asked by reporters on March 19, 2013 on Mongolian investment environment.
Could you please be able to describe briefly on advantages of FDI, and its impact on your economy?
The FDI inflow is really key contributor to recent economic development of our country. The data shows that foreign- invested companies contributed to 55 percent of GDP, and 47 percent of total tax revenue as for 2011 year according to the recent study by the UN’s Trade and Development Organization. These companies also created 180 thousand jobs or it constitutes 17 percent of total employment. Those companies play significant role in foreign trade relations. On the other hand, it has to be noted that the total number of foreign invested companies hardly account for 15 percent of total business entities in economy. By 2012, the accumulated amount of foreign investment reached 13 billion USD proving that the economic importance of foreign investment on economy. Alongside to that, foreign investment is considered to be crucial channel of transferring technic, technology, managerial culture and ability into Mongolia.
There are diverse opinions on Mongolian investment environment both in negative and positive connotations. Could you share us your thoughts on this?
Investment and business environment is also subject to changes. In other words, it is not possible to consider investment condition as constant or unchangeable. On contrary, it is a subject to changes that are consistent with constantly evolving policy and the Government’s perspective upon being taken of consideration of past results and time horizons. For instance, growth rate of FDI into Mongolia was smooth as around 10-20 percent during the period of 2005-2010. However, the FDI inflow soared up dramatically almost 400 percent yoy in 2011. The key contributor to such height was mining project as we all knew. However, preliminary data shows that the FDI amount declined by 16-18 percent yoy in 2012. Although it showed significant decline this year, it is still high as compared with the data of 2005-2010.
Such decline could be explained by several direct and indirect factors. For instance, investors usually are considerate about their decisions on investment for developing counties especially during their election year. In addition to that, amendments to legal acts and their implementation is another reason. The expectations and conditions have been changed the following the amendment on the law on regulation on foreign investment in business entities of strategically important sectors on May of 2012.
However, in the long term perspective, Mongolia has more potential to attract foreign direct investment. There is a set of factors on attracting investment. There are also drawback indicators of country to distract investment which are mainly weak infrastructure, corruption index, and bureaucratic institutional system. Importantly, the Government is taking essential decisions to improve those targeted areas. The real investment of the Government in improving business condition and reducing costs is itself the most important factor to improve expectations of investors.
The World’s big financial organizations, banks, investment funds started to evaluate investment conditions of Mongolia. Specifically, recent successful issuance of the Government bond was a good starting point of positive evaluation. In other words, Mongolia is still at center of foreign investors as for indirect and portfolio investment condition.
There is criticism on the decline of investment is mainly driven from the law on regulation on foreign investment in business entities of strategically important sectors and its accompanying regulations are still not formulated. What is your opinion?
In current world, the majority of countries are trying to balance the trade off between the protection of domestic producers and import of necessary products via opening to investors. Moreover, countries are trying to surveillance important sectors that might have huge possible impact economically and in terms of their security and it is the fact that some have declared certain sectors of their economy as completely prohibited from foreign investors. In this sense, idea and content of the law on strategically important sectors is necessary regulation for the country I guess.
In addition to that, it became step stone in improving benefits of foreign investment in domestic economy and social development. In order word, the official declaration of sectors that are limited to foreign investors and that are open became the first step in directing foreign investment in the most needed sectors and economic diversification as we always discussed. However, there is increasing need to regulate on how to support certain sectors by foreign and domestic investment.
It always takes time to adjust and implement legal environment of country for not only foreign but domestic business runners. But they put more emphasis on transparency and clear condition of the legal regulations but not its correctness and appropriateness. The accompanying regulations of the above mentioned law approved by the Government Resolution of 2th, March of 2013. Currently, preparation for the implementation of regulations is taking place. Moreover, the Government took the decision to amend the law on regulation on foreign investment in business entities of strategically important sectors. Soon amendments will be submitted to the Parliament.
Could you please share with us the planned actions to improve investment conditions in near future?
Mentioned before, there is needed to take complex measures to attract foreign investment in certain projects and programs that are consistent with approved economic policies. On the other hands, there is urgency to differentiate the nature of project and business activities by foreign investment from those by foreign citizens in Mongolian market.
For any investor and business runner, the Government support, especially, its investment in infrastructure is considered to be important factor. As you may know, the Government started to kick off several big projects in this field. For instance, the Government initiated to construct unprecedented big scaled work of railway, auto roads, and power station. I think this would be magnet for investors.
Moreover, we are working collaboratively with UN’s Trade and Development Organization on producing report on “Monitoring investment policies of Mongolia”. The discussions will be held on this report on 26th of March of this year at national level. This report is produced constantly by member countries of UN, WTO. It has two importance: firstly, it will analyze current situation of investment conditions of Mongolia and will formulate future actions. It is comparable to say that person will be gone through medical analyses and be diagnosed. Mongolian investment conditions will be “diagnosed”. We will be able to know where the setbacks are and healthy conditions, the latter part will be improved.
Secondly, the reporting will be starting point of openness and transparency to other countries of the world and foreign investors.
The report contains policy recommendations to attract foreign direct investment, to broaden its positive impact, and some policy highlights in sector-tailored conditions as for mining, tourism, financial, education and small and medium enterprises, legal improvement and agricultural sectors.
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