Mongolian Political Environment

Topics: Investment, Foreign direct investment, Property Pages: 94 (32116 words) Published: June 23, 2013
U.S. EMBASSY IN ULAANBAATAR MONGOLIA

2012 MONGOLIA INVESTMENT CLIMATE STATEMENT

ECONOMIC AND COMMERCIAL SECTION OF THE U.S. EMBASSY ULAANBAATAR, MONGOLIA

7/31/2012

Table of Contents
A.1 OPENNESS OF GOVERNMENT TO FOREIGN INVESTMENT ............................... 3 A.2 CONVERSION AND TRANSFER POLICIES ........................................................... 21 A.3 EXPROPRIATION AND COMPENSATION ............................................................. 22 A.4 DISPUTE SETTLEMENT .......................................................................................... 30 A.5 PERFORMANCE REQUIREMENTS AND INCENTIVES ......................................... 35 A.6 RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT ................................ 42 A.7 PROTECTION OF PROPERTY RIGHTS ................................................................. 45 A.8 TRANSPARENCY OF THE LEGISLATIVE AND REGULATORY PROCESS ......... 51 A.9 EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT .................... 58 A.10 COMPETITION FROM STATE-OWNED ENTERPRISES (SOES) ......................... 63 A.11 CORPORATE SOCIAL RESPONSIBILITY (CSR) ................................................... 68 A.12 POLITCAL VIOLENCE ............................................................................................ 69 A.13 CORRUPTION ......................................................................................................... 70 A.14 BILATERAL INVESTMENT AGREEMENTS AND TAXATION ISSUES ................ 76 A.15 OPIC AND OTHER INVESTMENT INSURANCE PROGRAMS............................. 79 A.16 LABOR ...................................................................................................................... 80 A.17 FOREIGN TRADE ZONES/FREE PORTS .............................................................. 83 A.18 FOREIGN DIRECT INVESTMENT STATISTICS ................................................... 84 2

A.1 OPENNESS OF GOVERNMENT TO FOREIGN INVESTMENT In its specific policies, laws, and general attitude, the Government of Mongolia (GOM) has tended to support foreign direct investment (FDI) in all sectors and businesses. In general, Mongolian law has not traditionally discriminated against foreign investors. However, reflecting on 2011 and developments in the first half of 2012, observers tell us that Mongolia presents investors with a very mixed business climate. Negative trends involving intrusive and seemingly arbitrary government involvement. Despite statements to the contrary, Government of Mongolia (GOM) commitment to the transparent rule of law seems has weakened. Regulatory and legislative trends initiated in 2009 in the areas of environmental law, taxation, and mineral rights—widely perceived as narrowing Mongolia's openness to FDI—continued through 2011 into 2012. Of particular concern, the recently passed 2012 Strategic Entities Foreign Investment Law of Mongolia (SEFIL) potentially limits foreign ownership of assets and access to use rights in three key sectors, among them natural resource extraction. Although the exact implications of SEFIL remain unclear, investors express concern that the law may bar them from participating in key sectors of the Mongolian economy or force divestment of Mongolian assets and equities in the affected sectors. Consequently, both foreign and domestic investors tell us they see Mongolia as a demonstratively riskier place in which to invest and operate, notwithstanding optimism surrounding Mongolia’s long awaited resource boom. More positively, the key Oyu Tolgoi copper-gold project (OT) moves forward, having brought over US $2 billion into Mongolia through technology, jobs, and other revenues in 2011. Although some clouds loom over the OT horizon, this marquee project continues to justify Mongolia’s investment potential for most investors. However, doubts persist over both the GOM’s commitment to honoring the OT Investment Agreement and its ability to manage public...
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