The inaugural Mongolia Trade and Commodity Finance Conference in October will not only bring together global trade leaders, it will also signify Mongolia’s emergence as the next boom economy, as investors vie to gain a foothold in its thriving natural resources sector.
International law firm Clyde & Co is one such investor, and its latest move to join a list of corporate sponsors for the conference signals its intention to expand its global client base to this country.
Stephen Tricks, a partner at the firm, says: “We are one of the few Western law firms that offer a Mongolian legal capability. Mongolia holds vast opportunities, with the potential to become one of Asia’s leading commodities hubs.”
Mongolia reported remarkable growth in 2010, as its real GDP growth peaked at 6.1% and international reserves exceeded $2bn at the end of December. Mongolia’s economy is small with a GDP of $5.8bn, and exports, primarily in natural resources, are its major driver. The mining sector grew by 6.3% in 2010, accounting for 81% of exports, 32% of government revenue and 30% of GDP. Total mining reserves are worth an estimated $1.3bn, and the government announced plans to attract $25bn in FDI for mining projects between 2011 and 2015.
The Oyu Tolgoi mine is one of the two mines expected to provide much of this wealth. Estimated to contain 37 billion kilograms of copper and 1.3 million kilograms of gold, the government was a major beneficiary of the $4bn landmark deal to mine these resources, negotiating a 34% ownership with Canada’s Ivanhoe Mines and UK-Australian firm Rio Tinto. Tavan Tolgoi, containing 7.5 billion tonnes of coal, is the subject of another partnership formed by the Mongolian government, this time with Chinese firm Shenhua, US firm Peabody Energy and a Russian-led consortium.
These projects illustrate the government’s shrewd management of its international partners. “Mongolia is keen to attract investment from several countries under its ‘third neighbour’ principle, encompassing China, Russia and the West,” says Mr Tricks.
It is acutely aware that its landlocked position means that China and Russia are its core trading partners, and the Chinese market is particularly significant. China is the destination for 90% of its exports, and in March 2011 Mongolian exports were up by 71% due to an increase in demand from China for coal and copper. Yet the perennial risk remains that either country may pressure Mongolia to sell its commodities cheaply, thus the government is highly proactive in attracting Western partners.
“There have been significant efforts to develop a robust legal system that reassures Western investors [that] structures exist to protect their interests,” says Mr Tricks. However, the government’s recent decision to stop granting new mineral exploration licences reveals another tension. Mr Tricks says: “This decision reflects the balancing of foreign mining companies’ interests that increase Mongolia’s wealth, and ensuring Mongolians benefit and investors do not simply strip the country’s resources. Nevertheless these companies will continue to remain interested in Mongolia’s potential.” n