Interview: Jim Dwyer
How has Mongolia’s foreign investment environment improved over the last five years?
JIM DWYER: The decision to eliminate the Windfall Tax in 2009 was a big turning point. After the legislation was put in place in 2006, foreign direct investment (FDI) in both copper and gold came to a halt. FDI coming from China and Western investors simply stopped. In September of 2009, the Oyu Tolgoi investment agreement was signed, opening the floodgates for the record levels of FDI the country has attracted over the last two years. For example, FDI in the first nine months of 2011 was $2.6bn compared with the historic high of $1.4bn the previous year. With regards to the western block of Tavan Tolgoi project, the negotiations are still continuing, but the basic agreement is in place. Invoking Mongolia’s “third neighbour” policy to have Peabody, the world’s largest coal company with top international standards, manage this project is an astute move.
Why is strengthening the judicial system and the rule of law important for the private sector?
DWYER: The rule of law is vital for private sector prosperity. The BCM supported the president’s judicial reforms, and the president couldn’t have been clearer in emphasising that everybody in the country has to abide by the rule of law. The initiative is there, and one important factor that has improved over the years is the government’s transparent dissemination of proposed changes to laws and legislation. Our legislative committee is working with the secretariat of the parliament to get prior notice of forthcoming legislation, so that we can study and interact with parliamentary working groups if needed. For example, the Windfall Tax Law was passed in just five days and brought investments almost to a complete standstill.
The recent Watershed Law is needed for environmental protection and sustainable mining development, but the law will have implementation and enforcement challenges. Affected companies have good projects in limbo and are not able to move forward, which will impact economic development. We believe things will be very different in as little as 10 years. There is a slow and steady demographic change taking place in Mongolia, and half the population is under 25. We also see a lot of Mongolians repatriating, which will result in a gradual generational change in the public sector.
What will be the main sources of growth in non-mining sectors? What are the key challenges in attracting investments in these areas?
DWYER: Other than mining services and the mining supply chain, I expect to see investment in financial services, property and real estate, agriculture and infrastructure. These are all important economic sectors shaping the future development of Mongolia. There are number of challenges. For example, private sector companies are having difficulties raising money because local banks are quite small. While the Mongolian Stock Exchange’s recently created partnership with the London Stock Exchange is very important, we also need other sources of financing, such as debt financing, which is relatively new to Mongolia. The government has yet to do a sovereign debt issue. The establishment of the Development Bank, assuming it is successful, will be important for raising international debt.
Can the private sector expect stability with the upcoming 2012 parliamentary elections?
DWYER: Democracy and the market economy have been in place for the last 20 years. We strongly believe, in terms of economic development, that it does not matter which major party wins, because they do not have widely diverging platforms and both are comprised of people with business backgrounds as well as a commitment to the market economy.
We think business will continue as usual. There may be a slight blip as business slows during the election period, but the private sector will not be sidetracked. As soon as the elections are finished, businesses in Mongolia are going to pick up where they left off.
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