An investment in the country of Mongolia can be a good opportunity if you consider how rapidly the economy is growing. In 2012 and 2013 economic growth was in excess of 14%. It is projected to continue at this full sprint rate of growth, through the rest of this decade. It is a new frontier for those who wish to be a bit creative in how to invest their money.
Mongolia is a treasure chest of minerals. There is gold and silver in abundance along with copper, coal,molybdenum, tin, tungsten, and uranium. It also has an assortment of rare earths so necessary to modern industry.
More than 80% of its exports comprise minerals which will rise even higher as Chinese demand increases in the years ahead. It is a great advantage to Mongolia to be geographically located next to the greatest market for what it has to sell.
Over 3,000 mining licenses have already been issued and the number is expected to continue to increase. It is 76th in the ease of doing business rank.
A comparison can be made between Mongolia and what the American West was like in the 19th century or Australia in the early 20th century. It is a land of opportunity and a great place to invest in, if you are willing to overlook some of the disadvantages. This would include rudimentary infrastructure in many areas of the country.
If Mongolia makes the right political and economic decisions in the next decade they will become the new South Africa of the world, when it comes to minerals. As a result of a small population of just over 3 million, the great wealth thus created, will make the citizenry fabulously wealthy per capita. It could soon have a sovereign wealth fund that will be compared favorably to the countries of Qatar, Norway, Brunei and the UAE (United Arab Emirates).
The total area of the country at 1,564,115.75 km2 (603,909 sq miles) make it the 19th largest nation in the world.
The nominal Gross Domestic Product (GDP) of Mongolia in 2012 was over $10 billion USD (United States Dollar). Per nominal capita that is $3,627 USD. In Purchasing Power Parity (PPP) that would be $15,192 Billion USD and $5,371 per capita respectively.
The major industries of the country along with mining include, construction and construction materials, food, beverages, processing of animal products, and natural fiber manufacturing. A third of the population is still engaged in agriculture, and over half in the service industry.
Statistics are changing so rapidly that they will need to be updated constantly. Exports passed $5 billion USD in 2012. The major goods sold abroad consisted of apparel, animal products (especially cashmere wool), livestock, hides, copper, coal, crude oil and other nonferrous metals.
China is the principal market for exports absorbing 89% of the total. Canada comes in second with just over 4%.
Import partners consist of China with 37.6% of the total, and Russia coming in second place with 25.7%. Far below is the United States at 9.4%, South Korea at 6.1% and Japan just under 5%.
Major imports consist of machinery and equipment, fuel, cars, chemicals and building materials. Consumer goods include a wide variety of industries especially food products, cigarettes, tobacco, soap and detergent.
Public debt is low at $2 billion USD as of 2012. Revenues and Expenses are roughly in balance at $3.44 billion USD and $3.496 billion USD respectively. The credit rating for Mongolia is in the BB levels and the outlook financially is stable. They are closing their budget deficit and the trade deficit is expected to be totally erased in 2014.
The big national project of course, is in the mining industry. It is the development of Oyu Tolgoi (OT) also known as Turquoise Hill. It is the site of the biggest foreign-investment undertaking in Mongolia. Copper and gold are the major minerals that will be mined. By 2020, it is estimated that this single mine will account for close to 1/3 of Mongolia’s GDP.
The capital of Mongolia is Ulaanbaatar. It is experiencing a boom at present. The population has swelled to well over 1 million in recent years. Hotels are full even as more are being built. Western style restaurants are filled with foreign engineers, miners, geologists and of course, investors of many different kinds. Just 20 years ago this city had streets that were mostly empty, and there was little construction. Now there are cranes everywhere, with building projects ongoing throughout the city. The pollution has become a major problem,especially during the winter. This is when the use of coal skyrockets during the months of below freezing temperatures. The city burns a great deal of coal to heat homes and businesses during the long winters.
A number of investors are using their money to develop industries and businesses that cater to this new influx of foreigners. A number of these enterprises have done very well. It is important to note however, that the fairly new fashionable mall containing pricey boutiques and restaurants is not crowded. This indicates that an investor will need to do market research or have a better understanding what the market demands are or will be in the capital.
Billions of USD in foreign investment are bringing a dramatic change to a country where the population and economy are relatively small. Over 10 billion will be spent on the OT Mining Project alone by 2020.This is a sum that equals the entire GDP at present.
Many investments become joint ventures. OT for example, is 34% owned by the Mongolian government and Ivanhoe Mines of Canada which has the remaining 66% ownership. Ivanhoe itself, is 49% owned by mining giant Rio Tinto. It will be Rio Tinto that will actually run the mine. It also has paid for most of the cost to develop the mine.
It is estimated the mine will produce 450,000 tons of copper annually for 50 years. This huge amount will make it one of the five largest copper mines in the world. It also expects to produce a large quantity of gold from the mine as well.
Another huge project in the works also in the South Gobi province, is the Five Hills Project. In Mongolian it is known as Tavan Tolgoi. It is the biggest untapped coal deposit in the world. Every citizen born before March 31, 2011 has been issued shares in this huge undertaking. The amount of coal that will be generated by this project will be enormous. Production of coal will increase from about 17 million tons now to 40 million tons annually by 2020. By 2040 output is anticipated to be near 240 million tons.
It is important to remember that Mongolia is still a poor country. In one generation the people of Mongolia have gone from being herders and small scale farmers to city dwellers, often caught between two worlds. Illegal mining of gold by ten of thousands of indigenous gold prospectors has poisoned many rivers and streams. It is the very water that people in the countryside often use to water their livestock and provide drinking water.
A country growing as fast as Mongolia will obviously experience growing pains. As a democracy of only 25 years in experience, there will be numerous temptations for politicians. There will be many promises made to the people, much more than can be afforded by the extensive development in the extraction industries.
However, there will still be tremendous opportunities of investment in Mongolia in the decades to come. The investors that arrive first, will have the advantage to offer a service or business that has less competition in the rapidly growing economy. A joint venture might suit many investors who would rather be less involved business partners.
The country has had a glorious although bloody past. Mongolia had the largest contiguous land empire in the history of the world. Genghis Khan was an incredible warrior, and 800 years ago brought the Mongolian people from the steppes, to become rulers of much of Asia. This included India, much of the Middle East, and most of Russia. The past has been celebrated and a future as the Asian Wolf can be as well.