Mongolia

Executive Summary

Mongolia’s frontier market and vast mineral reserves represent potentially lucrative opportunities for investors but an undercapitalized banking sector and lack of input from stakeholders during rulemaking warrant caution.  Mongolia imposes few market-access barriers, and investors face few investment restrictions, enjoying mostly unfettered access to the market.  Franchises such as gyms, fast food, and convenience stores have outperformed expectations, suggesting investors can bring successful international business models to Mongolia’s services sector.  Mongolia’s cashmere-apparel and agricultural sectors also show strong promise.  However, investing into politically sensitive sectors of the Mongolian economy – such as mining – carries higher risk.

Economists’ average 2021 GDP growth forecast is 6.1 percent, but this figure understates the impact COVID-19 has had on the economy in 2021.  Despite experiencing declines, mining and agriculture have been relatively resilient in the face of the pandemic, meaning Mongolia’s broader economy may emerge less damaged than some of its peers.  Balance-of-payments concerns in 2020 have substantially abated in 2021, with central bank foreign-exchange reserves buoyed by increased minerals exports and higher commodity prices.  Continued economic growth will also in part depend on the resolution of a dispute over the Oyu Tolgoi mine without disruption to its underground operations.  If global interest rates rise, Mongolia could face the foreign-exchange pressures characteristic of comparable emerging markets.

Mongolia has committed to implementing the U.S.-Mongolia Agreement on Transparency in Matters Related to International Trade and Investment (known as the Transparency Agreement), which requires a public-comment period before new regulations become final.  It also requires ministries to respond to public comments or factor them into final rules.  Mongolia is four years behind implementing its Transparency Agreement public-notice and comment commitments but has formally reiterated its intention to make progress.

The government has taken steps to address growing concerns in recent years about threats to judicial independence, including by adopting constitutional amendments in 2019 and judicial reforms in 2020 and 2021 that improve transparency and reduce political influence in the appointment and removal of jurists.  Investors, however, continue to cite long delays in reaching court judgments in business disputes, followed by similarly long delays in enforcing these decisions, as well as reports that administrative inspection bodies, such as the tax authority, will fail to act on politically sensitive decisions.  Businesses note a substantial regulatory burden at the regional level as well, although the government’s “One-Stop-Shop for Investors” has helped investors navigate this process.