Why Invest in Mongolia

Posting 17.2% GDP growth in 2011 and home to under 3 million people, Mongolia is the world’s fastest growing economy, yet least densely-populated country. Mongolia’s economic surge has been spearheaded by growth within the extractive industries, which have merely scraped the surface in terms of the country’s abundance of natural resources – untapped mineral wealth is estimated to exceed US$1.3 trillion. With its strategic geographical location between China and Russia, resource opulence, and small population whose per capita income is set to triple in the next decade, Mongolia’s rapid development will propel growth in a variety of sectors as the “Wolf Economy” continues to evolve.

  • Advantageous Location & Geography
    • Bordered by and key trade partner with China, the 2nd largest economy in the world, which seeks energy sources to help fuel its own growing economy
    • Neighbors with Russia, a rapidly emerging economy (11th largest in the world) that provides important trade and transportation links
    • Located near Kazakhstan, the largest economy in Central Asia, and along major maritime trade routes with Japan and Korea, the second and fifth largest economies in Asia
    • Top 20 country by size (1.5 million km2); huge areas of land available for animal husbandry
  • Booming Economy
    • Fastest growing economy in the world (17.2% GDP growth in 2011)
    • GDP is expected to double in the next decade
    • Competitive tax rates and recent reforms in the banking sector mobilizing economic expansion and access to capital
  • Stable Pro-Business Government
    • Government has embraced free-market reforms in the post-Soviet era; privatization has been ushered in as price controls have been largely removed
    • Democratic parliamentary elections held in 2012 led to a peaceful transition between political parties
    • Mongolia ranked among the top-10 global reformers on The World Bank’s “Ease of Doing Business 2013 Report”
    • Legislative reform and a more sophisticated fiscal policy have been implemented since the global financial crisis to establish economic stability
  • Established Stock Market Poised for Future Growth
    • Established in 1991, the Mongolian Stock Exchange (MSE) was the world’s best-performing stock market in 2010 and second best-performing in 2011
    • Recent technological upgrades to the MSE have been implemented to increase liquidity and trade volumes
    • Booming growth in the last 5 years, bourse now has 332 listed companies
    • Combined market capitalization quadrupled from 2008 ($406 million) to 2011 ($2.3 billion)
    • Mongolian tögrög was world’s best-performing currency in 2010 (15% against the dollar)
  • Transportation
    • Trans-Mongolian Railway links Mongolia with neighboring countries (Russia and China) through Ulaanbataar; expansion plans to create export corridors through Russia to Pacific ports
    • Construction of the Millennium Road, an east-west road crossing Mongolia, is underway with one-third paved as of 2011
    • Ulaanbataar’s international airport offers direct flights to Europe, East Asia, and Central Asia; numerous carriers service domestic destinations
  • Trade Integration
    • Member of WTO, IFC, ADB, and World Bank; bilateral trade and cooperation agreements with over 30 countries
    • Included in General System of Preferences (GSP) tariff exemptions for Japan, USA, and Canada; beneficiary of EU’s preferential tariff scheme
    • Trade deficit is expected to transition to a trade surplus in 2013
  • Growing Consumer Market
    • Mining growth is expected to spill over into other industries, particularly in the retail and services sectors
    • Rapid urbanization of Ulaanbaatar is driving demand for real estate, utilities, telecommunications, and consumer goods
    • Burgeoning ‘consumer class’ with growing disposable income; influx of multinationals and luxury retailers to the Mongolian market
  • Young, Educated Workforce
    • 59% of population under the age of 30
    • 96% literacy rate amongst people ages 15-24

The Role of Private Equity

As large multi-national corporations enter Mongolia to work within its extractive sector, Mongolia’s economy will require a larger presence of small and medium-sized enterprises (SMEs) to provide goods and services within ancillary sectors, and address the country’s growing consumer demands. SME play an important role in any economy; they create jobs, address market deficiencies and unmet customer needs, and link local suppliers to outside markets. However, Mongolia’s banking sector and capital markets are not yet developed enough to meet the economy’s growing demand for financing. Consequently, many Mongolian businesses are faced with a challenging task when it comes to raising capital and developing their businesses.

However, private equity firms can address this inadequacy by helping Mongolian businesses attain access to capital. In addition to injecting needed funds, private equity firms also actively support their portfolio companies by implementing best management practices in areas such as financial control and corporate governance. Furthermore, private equity can help Mongolian companies reach wider markets, increase profits, and achieve long-term commercial sustainability.