Sunday, September 10, 2017

Mongolia: Foreign Direct Investment in Figures 2017


FDI in Figures

Foreign direct investment has been the engine of Mongolia’s economic growth. FDI flows and stocks have risen sharply in recent years, but remain below their potential. In 2015, following the referendum in February endorsing the people's willingness to host foreign investment in the mining sector, the Prime Minister worked to restore investor confidence. According to UNCTAD, FDI flows were negative in 2016 (USD -4.072 billion). However, the Asian Development Bank (ADB) forecasts that FDI will increase significantly in 2017, thanks to the strengthening of the country's mining capacities, before stabilising in 2018, when the country will have maximised its coal-mining capacity.

In order to attract FDI, the Government launched a programme to improve the country’s legal framework. In particular, it decided to lift the moratorium on new mining exploration licences. However, foreign investors remain hesitant since the Government suspended 106 permits in 2014 due to a corruption investigation. Mongolia possesses numerous assets, including raw materials, sizable livestock and many other sectors with high potential for development (mining, food processing, telecommunications, tourism). All sectors of Mongolia’s economy are open to FDI. However, the instability of economic policies and regulations, its geographical isolation, corruption and an inefficient transportation system are important obstacles for investors. After several years of growth, Mongolia's business climate ranking has declined: the country ranked 64th out of 190 countries in the World Bank's 2017 Doing Business report (a loss of two places compared to 2016). Despite this decline, the World Bank has pointed out that significant progress has been made in terms of tax collection.

The sectors that attract most foreign investment are mining and, from henceforth, also the oil and construction sectors. In 2013, three large-scale mining projects were launched, including a new gold and copper mine co-financed by Rio Tinto. This project is expected to account for one-fourth of the country's GDP in the long term. However, opening of the mining sector to foreign investment is not without risk. For example, a rapid expansion of the construction sector, over a one-year period, may run the risk of over-representing the country’s real capacities.
Mongolia’s main investment partners are China, Canada, Russia, Great Britain and the United States.
 Foreign investors’ confidence tends to revive as a result of right and consistent economic policy and citizens’ income is increased and many enterprises have started operating profitably, following such economic growth and business activities.

“The government of Mongolia’s Action Plan 2016-2020” and “Main course of Mongolia’s economic and social development in 2017”, it is inscribed that Investor Protection Council needs to established, followed with facilitation of investment related dispute settlement and of favorable environment for the sustainable operation of investors.

In this scope, Investor's Protection Council is established based on an ordinance of the Prime Minister of Mongolia in Dec 2016. That council is composed of Chairman, 15 members, and Secretary and its main functions are to provide recommendations in regards to following issues, in order to protect rights and legitimate interest of investors invested in territory of Mongolia, to resolve cases of compliant and claims submitted in response to bureaucracy of public bodies and illegal activities, to prevent from potential risks, to improve legal environment for investment, and to ensure their implementation. 

Furthermore, we believe that we should pay more attention towards ensuring the independence and regular operations of the Investor's Protection Council, in terms of human resources, budget issues and capacity development

Mongolian government is pleased to announce that the World Bank Group promoted Mongolia’s endeavor for investor protection and investment promotion mechanisms, and called for Mongolia to become a member of the “World Forum on Investment Policy Reform” initiated by the World Bank. 

Mongolian Government is working hard to convert Mongolia into one of the best investment destinations in the world and we believe that the involvement of the foreign investors here is very important for that. I would like to confirm here from this podium that Mongolia’s door investment is always open.

Country Comparison For the Protection of Investors

MongoliaEast Asia & PacificUnited StatesGermany
Index of Transaction Transparency*
Index of Manager’s Responsibility**
Index of Shareholders’ Power***
Index of Investor Protection****
Source: Doing Business - Latest available data.
Note: *The Greater the Index, the More Transparent the Conditions of Transactions. **The Greater the Index, the More the Manager is Personally Responsible. *** The Greater the Index, the Easier it Will Be For Shareholders to Take Legal Action. **** The Greater the Index, the Higher the Level of Investor Protection.

Foreign Direct Investment201420152016
FDI Inward Flow (million USD)337944,072
FDI Stock (million USD)16,692.816,679.912,980.4
Number of Greenfield Investments***
FDI Inwards (in % of GFCF****)9.74.0183.6
FDI Stock (in % of GDP)136.9142.3117.7
Source: UNCTAD - Latest available data
Note: * The UNCTAD Inward FDI Performance Index is Based on a Ratio of the Country's Share in Global FDI Inflows and its Share in Global GDP. ** The UNCTAD Inward FDI Potential Index is Based on 12 Economic and Structural Variables Such as GDP, Foreign Trade, FDI, Infrastructures, Energy Use, R&D, Education, Country Risk. *** Green Field Investments Are a Form of Foreign Direct Investment Where a Parent Company Starts a New Venture in a Foreign Country By Constructing New Operational Facilities From the Ground Up. **** Gross Fixed Capital Formation (GFCF) Measures the Value of Additions to Fixed Assets Purchased By Business, Government and Households Less Disposals of Fixed Assets Sold Off or Scrapped.
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Tax Rates

Value Added Tax (VAT)
Company Tax
Progressive rate from 10% to 25%
Withholding Taxes
Dividends: 10/20%, Interests: 10/20%, Royalties: 10/20%.
Bilateral Agreement
Mongolia and Spain are not bound by a Double Taxation Agreement.
Social Security Contributions Paid By Employers
Other Domestic Resources
Consult Doing Business Website, to obtain a summary of the taxes and mandatory contributions.

Individual Taxes

Income tax10%

Country Comparison For Corporate Taxation

MongoliaEast Asia & PacificUnited StatesGermany
Number of Payments of Taxes per Year19.022.910.69.0
Time Taken For Administrative Formalities (Hours)148.0198.0175.0218.0
Total Share of Taxes (% of Profit)24.733.944.048.9
Source: Doing Business - Latest available data.

Business Setup Procedures

Setting Up a CompanyMongoliaEast Asia & Pacific
Procedures (number)5.007.00
Time (days)6.0023.90


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