Attracting China’s Direct Investment The Mongolian Perspective

Many developing countries have developed a renewed interest in FDI as a source of capital due to the decline in Official Development Assistance (ODA) in the1990s.Since the1990s, when Mongolia gained full economic independence from the former USSR, systematic changes started to appear in the country and a new market field emerged for international foreign direct investment. With same expectations as other countries that foreign investment will raise employment, exports, and/or tax revenue, or that some of the knowledge brought by the foreign companies may spillover to the host country private sector, the Government of Mongolia has started to apply various forms of investment incentives. Proclaiming an "open-door" towards the outside world and efforts to promote foreign investments are apparent in the specific policies, laws, and general attitude adopted by the Government of Mongolia, which tends to support FDI in all sectors and businesses.In2003Mongolia adopted an Economic Growth and Poverty Reduction Strategy built upon a series of policy reforms to accelerate growth and make it more pro-poor. This strategy features private sector-led growth, and launches measures for improvement in the business environment, particularly for rural entities and Small and Medium Enterprises (SMEs), including finance for these activities; development of energy, road, communication and information technology infrastructure; and promotion of FDI and external trade. The strategy also calls for restructuring to make Mongolia’s economy more competitive:privatization and regulatory, land and social service reform. It foresees substantial efforts to create income-earning opportunities for the poor, and to rationalize social service delivery and give it a pro-poor focus. Over the medium term, strategy implementation will involve resources equivalent from40%to45%of Mongolia’s GDP.Mongolia’s real GDP started growing again in1993, and in2010it has reached highly precedent levels. The mining sector, agricultural sector, and rapid expansion of services Growth during this period have generated a general turnaround in the. At present, Mongolia is experiencing unprecedented economic growth, with real GDP increase averaging7%since2002. Soaring copper and gold prices, which have greatly boosted exploration and FDI in the minerals sector, have ignited this growth, and this has been reinforced by recovery of livestock herds, previously decimated by three exceptionally hard winters. Rising activity in these sectors has also spilled over into construction, financial services and retail, so that growth is now fairly broad-based. As of2006, improved terms of trade, driven by robust economic expansion and the run-up in minerals prices, led to a current account surplus in2006, and better-than-expected mining income and other Factors and Policy Contributing to Deepening Foreign Direct Investment from China to Mongolia29revenues have created a budget surplus. Interest peaked around Mongolia’s vast natural resource reserves and under favorable conditions foreign direct investment into Mongolia’s mining industry got well underway towards the end of the last decade. Since the Foreign Investment Law of Mongolia was amended investment in the exploration and mining sector as risen every year and overall economic growth has been between5%-6%on average until, in2010, Mongolia began to hit the global headlines as one of the world’s best performing economies.