Economy - Investment

Investment shortage for smaller mining projects

Statistics from the Bank of Mongolia show that foreign direct investment (FDI) into the country decreased by around 10 percent in 2018. Last year, the figure came out to USD 1.87 billion, of which 90 percent was allocated to the mining sector. The latest data indicate that mining’s share of FDI is increasing year by year.

The mining sector and its mega projects take up a lofty space in Mongolia’s FDI. In 2018 alone, USD 1.6 billion was invested as FDI in mega projects, of which USD 300 million accounted for interest payments paid by parent companies for project funding, said the Head of the Research and Statistics Department of the Bank of Mongolia, D.Gan-Ochir.

He added that approximately USD 150 million was allocated for small mining projects last year. Mongolia’s only and largest foreign investment project Oyu Tolgoi received USD 1.4 billion last year, which makes around 78 percent of all FDI.

Sixty percent of all FDI Mongolia received since its transition to a market economy in 1992 up to 2009 was spent in the mining sector. With the start of Oyu Tolgoi’s open pit operations, mining’s share in FDI dramatically increased to upwards of 80 percent. However, in the years following the burst of the commodities price bubble, the country experienced a shrink in investments down to 56 percent.

Although the weight of the mining sector in total foreign investment is increasing, actual monetary value of this growth has not been visible. Foreign direct investment, excluding the mega projects, has shown a downturn for the sixth consecutive year. Economists led by Ch.Khaschuluun, Ph.D., of the Economics Institute under the National University of Mongolia mentioned in their “Study on the Oyu Tolgoi project’s impact on Mongolia’s development” published last year that “the slowdown in FDI in Mongolia starting from 2013 has made it impossible for the country’s economy to maintain economic growth in the double digits, dropping it to 7.9 percent in 2014, 2.4 percent in 2015 and 1.2 percent in 2016. Despite this economic downturn in a short amount of time, a certain amount of FDI was coming in; thus, it positively affected economic performance.”

At the same time, FDI figures from 2011-2013 show that smaller projects also enjoy spurts in investments as money pours into mega projects. There is eager expectation that investments in other projects in the sector will revive in the coming years following planned new investments in Oyu Tolgoi’s underground construction and the Tavan Tolgoi project this year.

Thanks to these mega projects, the balance of payments deficit narrowed considerably to a pre-performance of USD 141.2 million. D.Gan-ochir noted that “this provided a crucial impact on ensuring growth in foreign exchange reserves.” Official foreign exchange reserves of the Bank of Mongolia reached USD 3.5 billion by the end of 2018.

All matters aside, the central bank predicts that foreign investment in Mongolia’s mega projects will not abate any time soon. FDI of USD 1-1.2 billion is pending for the next two years. Data also strongly suggest implementing policies that encourage investment in other projects. The Bank of Mongolia is urging the government to map out investments and issue a transparent strategy.

 



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