Investment opportunities in Mongolia

Mongolia's political stability and democratic governance are key factors making the country an attractive place to do business. The country's frontier market and vast mineral resources present potentially lucrative opportunities for foreign investors.

The Government of Mongolia actively attracts foreign investment and also implements the necessary legal protection for investors.

The Investment Law provides for:

• Equal rights for both local and foreign investors
• Easy access to the Mongolian market
• Protection of interests of interested parties
• Creation of a favorable climate for investors
• Guaranteed stability through the Tax Stabilization Certificate and Investment Agreement

As well as:

• Bilateral agreements on avoidance of double taxation with 29 countries
• General economic and trade agreements with 24 countries
• Agreements on investment support and mutual protection with 43 countries

Sectors for investment

Mining

Mongolia is a resource-rich developing country with an abundance of untapped natural resources. Mongolia’s strategic location next to China, the world’s largest consumer of raw materials, makes it a particularly attractive investment destination for mining projects. With so much growth potential, Mongolia represents a significant opportunity for investors looking to take advantage of its abundant natural resources.

Mongolia’s mining sector has approximately 10,000 deposits with over 80 types of minerals and several hundred thousand mineral extraction points. The central and eastern parts are well explored, while the western part of the country has untapped potential for new discoveries of deposits and mineral resources.

The mining sector is an integral driver of the country’s economy. It accounts for about 93% of total exports, about 58% of foreign direct investment and 22.8% of GDP.

The Ministry of Mines and Heavy Industry (MMHI) is the main government agency responsible for formulating and implementing government policies for the development of the geological and mining sectors. The Mineral Resources and Petroleum Authority (MRPA) is also the key regulatory agency with the authority to issue licenses, decide on land allocation for small-scale mining and widespread minerals.

Currently, there are about 2,557 active licenses issued in the mining sector, of which 1,708 are mining licenses and 849 are exploration licenses.

According to the Law on Minerals, mineral resources naturally occurring on and under the surface of the earth in Mongolia are the property of the state. Therefore, the state reserves the right to grant exploration and production rights and licenses. If a deposit may have a potential impact on national security, national or regional economic and social development, or produces (has the potential to produce) more than 5% of the total annual GDP, it may be classified by the government as a mineral deposit of strategic importance.

For exploration of a strategic deposit where the state has conducted jointly funded exploration with private organizations and determined proven reserves, it may have an equity stake of up to 50%. However, in the relevant privately financed exploration of a strategic deposit, the state may have a participation interest of up to 34%.

The Government of Mongolia is committed to transparent and responsible mining, a diversified economic structure, and equitable wealth distribution through the Mining Commodity Exchange. As part of this, the Mining Commodity Exchange Law was adopted in December 2022 to regulate the establishment and operation of the exchange. According to this law, the exchange operates as a state-owned enterprise with the aim of transparently managing Mongolia's mining commodity trade, setting fair prices, and increasing investment interest in the mining industry through unification of export policies. In addition, in order for mining products to be traded on the exchange, they must pass quality tests: a warehouse equipped in accordance with the requirements for storing the product, a terminal, a transportation and logistics center, and an analytical laboratory.

The government's Digital Nation initiative has also extended its influence to the mining industry by digitizing the bidding process for licenses. In 2022, MMHI approved a new regulation on the selection procedure for issuing mining licenses. With this, the Mongolian government aims to increase the number of exploration licenses issued to increase the volume of geological exploration and the amount of proven reserves.

Mongolia has exceptional geological natural potential for mineral resource development, offering unprecedented growth potential for copper, base metals, gold, coal, and uranium. However, it is worth noting that the extent of Mongolia’s mineral potential has only been partially explored, with large-scale geological mapping currently covering only 40% of the country’s vast land area.

Renewable Energy

Mongolia has abundant renewable energy potential, especially solar and wind. Addressing the issue of national energy security, the government’s Vision 2050 program aims to become self-sufficient in energy production in the first stage and reduce the use of coal as an energy source. And to become an energy exporter in the second stage. One of the ways to achieve this goal is to develop the renewable energy sector. In addition, in accordance with the New Recovery Policy, Mongolia aims to develop renewable energy in an appropriate proportion, build hydroelectric power plants and storage stations, and ensure the reliability and stability of the integrated energy system.

In Mongolia, the installed capacity of renewable energy generation has reached 286 MW, accounting for 18.1% of the total installed capacity and 9.2% of the generation. Due to the difference in tariffs, 27% of the total sales revenue is allocated to these sources.

The Law on Renewable Energy of January 11, 2007 establishes the legal basis for the use of renewable energy facilities, production and transmission, the rights and obligations of renewable energy license holders, and tariffs. According to this law, the central administrative body of the energy sector is the Ministry of Energy, which is mainly responsible for the development and implementation of state policies on renewable energy. According to the Energy Act, most activities related to the energy sector are subject to appropriate licenses.

The Energy Regulatory Commission (ERC) is the main regulatory body that oversees licensing and controls the activities of licensees in accordance with the applicable law. (ERC) is also responsible for setting electricity tariffs, approving the template of the contract related to the transmission network, and monitoring the implementation of the contract. In addition, the Energy Law of 1 February 2001 is one of the main laws regulating the energy sector and details all types of energy licenses such as energy generation, transmission, distribution, construction of energy facilities and so on.

The Renewable Energy Law provides for a feed-in tariff scheme that varies for grid-tied installations as follows:

• Wind: up to $0.085/kWh
• Solar: up to $0.12/kWh
• Hydro up to 5 MW: $0.045-$0.06/kWh

Agribusiness

Mongolia is rich in natural resources such as vast steppe grasslands, forests, wetlands. The agro-industrial sector plays an important role in the country's economy, being the second most important one, as it is part of a diversification strategy aimed at reducing the heavy dependence on the mining sector.

There is great potential for exporting industrial products with high added value. According to a recent analysis, about 60% of Mongolia's cropland has low nitrogen and potassium content, which are easily absorbed by plants, and 34.7% has low phosphorus concentrations, respectively. Thus, there are opportunities for intensification and further development of agriculture through the systematic use of mineral fertilizers based on the results of soil analysis and the physiological context of crops, as well as through the widespread use of nutrients and biofertilizers produced from local natural and agricultural resources. Therefore, there are wide opportunities for investors to cooperate in this area to improve pasture management, produce competitive agricultural products with added value, ensure food security, develop the marketing of organic agricultural products and treat livestock diseases.

With investors interested in farming, either by owning land alone or jointly with foreign investors and local organizations, or by leasing land, there are huge opportunities to grow and export high-quality and nutritious food crops other than traditional crops grown in Mongolia, such as buckwheat, rapeseed, soybeans, and to produce animal feed from their by-products.

Banking

Mongolia's financial sector is dominated by banks, providing about 90% of the financing, namely 5 strategically important banks: Golomt Bank, Khan Bank, State Bank, Trade and Development Bank, and Khas Bank. The banking sector has become one of the largest sectors of the economy, with total assets and capital growing every year.

The banking sector is supervised by the central bank, the Bank of Mongolia (Mongol Bank), which also issues licenses for commercial banking services such as cash deposits, loans, payment services, issuance of guarantees, etc. under the Banking Law.

There are currently no foreign banks in Mongolia. The 2021 amendment to the Banking Law required strategically important banks to cap the shareholding limit per shareholder at 20%, either solely or jointly holding the bank's shares with its related party, and to be publicly listed on the stock market by June 30, 2023. The results of the banks' IPOs on the primary trading market have far exceeded expectations. In addition, the amendment to the Banking Law expanded the definition of influential shareholder to include the ultimate beneficial owners of any person holding 5% or more of a bank’s shares and those who can influence the bank’s policies, decisions, and management. Any changes to influential shareholders and their shares are subject to approval by Mongol Bank.

In January 2023, the Parliament passed the Investment Banking Law, which sets the legal basis for the establishment and operation of investment banks in Mongolia. Investment banks are allowed to provide medium-term or long-term financing through eight types of activities, such as issuing loans and guarantees, settling payments, purchasing/selling securities and financial instruments, purchasing/selling foreign exchange, underwriting, safekeeping of securities, and financial and investment advice.

The Bank of Mongolia is the main regulator that issues permission to establish an investment bank. According to the law, foreign banks can establish their subsidiaries in Mongolia to carry out investment banking activities, subject to the licensing requirements of the FRC or Mongol Bank. However, the law prohibits investment banks from operating for any purpose other than investment, acquiring shares of other banks and financial institutions in Mongolia, accepting deposits or offering interest-bearing accounts or receiving funds in any similar manner, and establishing a subsidiary or controlling entity. In addition, investment banks must comply with other requirements set out in the law and detailed secondary rules approved by regulators.

Tourism

As the birthplace of Genghis Khan, Mongolia offers foreign tourists a unique natural landscape as well as a vast historical and cultural heritage. The country is ranked 99th out of 140 countries by the United Nations World Tourism Organization. Tourism has been highlighted as a potential sector to be explored in terms of high potential for foreign direct investment and linkages in the medium to long term. In recent years, the government has introduced a number of inspiring measures to improve infrastructure and develop tourism and has set ambitious short- and medium-term goals for the sector, which include increasing the number of international arrivals to Mongolia.

As an emerging sector with high growth potential, increased investment in hotels, tourist camps, ecotourism and foreign tour operators is in high demand. Indeed, over the past decade, Mongolia has earned a reputation as a key destination for outdoor and adventure sports and other related activities, including trekking, climbing, fishing, hunting and bird watching, among others, based on exotic, untouched, beautiful nature and traditional nomadic customs.

The government's Vision 2050 program aims to support the development of tourism and hospitality sectors. Therefore, the government has declared 2023-2025 as the "Visit Mongolia Year". This initiative aims to attract more tourists to the country. As part of this program, the Mongolian government has adopted a resolution to temporarily exempt citizens of 34 foreign countries from visa requirements for up to 30 days for 3 years — until the end of 2025 to support tourism in Mongolia.

ICT

With the rapid growth of overall ICT revenue every year, new interest from foreign investors will develop a higher speed network and build a competitive network for global markets

The sector has the potential to attract significant foreign direct investment to promote new activities, faster and better services. With high mobile penetration, subscriber growth is expected to slow or plateau in the coming years. The government has taken a key role in this area, introducing a series of large-scale long-term development plans aimed at ensuring sustainable improvements in both the coverage and quality of the national telecommunications networks.

Mobile phones are widely available, with all provincial capitals having access to 4G. Wireless local area communications is another technology that has helped Mongolia increase telecommunications accessibility and bypass fixed-line infrastructure. For internet, Mongolia relies on fiber-optic links with its Chinese and Russian neighbors.