Mr. Jim Dwyer, Executive Director, Business Council Mongolia

1. MACROECONOMIC ENVIRONMENT
FOR INVESTMENT IN MONGOLIA
Jim Dwyer, Executive Director - Business Council of Mongolia
Business Breakfast with South African Delegation
23 September, 2011

2. I. BCM INTRODUCTION
• BCM is a leading stakeholder advocate for businesses in Mongolia. Approximately 200 members
including most every large domestic and international corporate plus SMEs, IFI’s, NGO’s and
Embassies comprise BCM’s membership. The following companies are represented on BCM’s
Board of Directors:
1. Boroo Gold 14. Newcom Group
2. Breakthrough PR 15. Oyu Tolgoi
3. Energy Resources 16. Peabody Energy
4. Erdene Resources Development 17. Petro Matad
5. Just Group 18. PricewaterhouseCoopers
6. Khan Bank 19. QGX Group
7. Leighton Asia 20. Rio Tinto
8. Lynch & Mahoney 21. Sant Maral Foundation
9. MCS 22. South Gobi Energy
10. MICC 23. Tavan Bogd
11. Mongolian Star Melchers 24. Trade & Development Bank
12. Mongolyn Alt Corporation 25. UMC Holding
13. Monnis International
• BCM promotes trade and investment. 100 volunteers in 7 BCM working groups serving as a forum
for dialogue with the GoM, public and BCM members on important ‘business climate’ issues. Our
weekly BCM Newswire is the strongest source of business, economic and political news on
Mongolia in English (members only). Bi-lingual websites link to BCM’s Mongolian Mining Supply
Chain database of 1,300 registered companies, 90% Mongolia-owned. Monthly BCM member
meetings are held in UB with top government and industry speakers plus networking receptions.
In addition several other special workshops and events are organized.
• If your company is a stakeholder in Mongolia or is seriously considering trade or investment in
Mongolia, BCM Membership is highly beneficial.

3. II. INVESTMENT CLIMATE IN
MONGOLIA (1)
• Mongolian government is open to Foreign Investment in all sectors and businesses.
Nearly US$2 billion has been invested by sovereign wealth funds during the past year in
companies with most or all of assets in Mongolia. Rio and Ivanhoe are investing another
$2.5 billion in Oyu Tolgoi (OT) in 2011 on top of prior $1.5 billion with expected total
investment of $6 billion and production by mid-2012. Note: Mongolia’s GDP is
approximately $6 billion. A $700 million capital injection in October 2010 via IPO of
Mongolia Mining.
• Key will be managing this wealth going forward.
• Property rights are respected for almost all asset types.
• One of Asia’s most liberal ownership regimes.
• General trend has been to privatization. E.g. 3 bank privatizations in 2000’s. All but one
of 14 banks are privately-owned. Exception is newly formed State Bank, to act as bridge
for good assets of two insolvent banks. Should be privatized within 1-2 years.
• Right to own private movable and immovable property recognized under Mongolian law.

4. INVESTMENT CLIMATE IN
MONGOLIA (2)
• All domestic transactions are settled in Mongolian currency (tugrug).
• Affordable capital is scarce within Mongolia.
• Political violence is rare, with 9 peaceful presidential and Parliament
elections since 1990.
• Vocational training is needed for skilled labor. Intense focus of
Millennium Challenge Corp (U.S.) with $50 million in grants plus others
including OT who will spend up to $150 million over 5 years. There is
also a shortage of “white collar” workers.
• Tax regime: 10-10-10 with 2006 Tax Law with corporate deductions
broadened significantly.
• Homogeneous population - 97%. Relatively young and very literate and
hardworking labor force. People are Mongolia’s greatest asset!

5. III. TRENDS IN MONGOLIA’S
MACROECONOMY(1)
· Massive mineral wealth is transforming the Mongolian economy as a whole, with mining-
related foreign direct investment (FDI) driving strong growth and rapid modernization.
· The European Bank for Reconstruction and Development (EBRD) predicted in July that
the economy will grow by 9% this year, with this rate accelerating to 12% in 2012 due to
increasing FDI in the mining sector, which the EBRD says made up 26% of GDP last year. The
IMF estimates GDP of US$6.1 billion in 2010 and US$15.6 billion in 2016. (In USD, 26%
CAGR). Another bona fide estimate is for GDP to double every two years for the next 10
years.
· Within a decade Mongolia's average income could triple to US$10,000 a year.
· The country is estimated to hold more than $1trn in probable mineral deposits of coal,
copper, gold and uranium. Coal exports are expected to reach 41.6 million tons in 2013, up
from 16.6 million in 2010. Copper will surge in 2013 with a full year of production of the OT
mine. When in full production, OT will provide one-third of GDP.
· The tugrug should continue last year’s 14.8% appreciation.
· Mining boom to bring investment opportunities in the Supply Chain. The Government is
willing to strengthen local mining supply chain businesses.
· Property, financial sector and agriculture are other industries which could shape the
country.

6. III. TRENDS IN MONGOLIA’S
MACROECONOMY(2)
• The country’s exports rose 52.3% in the first half of 2011 to a total value of $2bn, some three-
quarters of which were coal and other minerals, with 90% going to Mongolia’s number one trading
partner, China. Meanwhile, imports reached $2.7bn, more than double the same period of last
year, according to the National Statistics Office of Mongolia.
• FDI rose to $2.2bn in the first seven months of 2011, surpassing last year’s historic high of $1.4bn.
Tax revenues were also up 57% year-on-year and non-tax revenues up by 72%, according to the
government’s “First Half of 2011 Bulletin”, released in July. In the same month, the Economic
Department revealed that foreign exchange reserves as of June 30 stood at $2.5bn.
• These increases saw Mongolia’s year-to-date fiscal balance swing into a surplus of MNT98.4bn
($78.7m), compared with a MNT167.5bn ($133.9m) shortfall recorded during the same period a
year earlier, according to the Emerging Europe Monitor.
• Confidence from rising FDI and government revenues over the last decade can be seen in steep
increases in planned state spending, with the recently approved 2011 national budget set at
MNT4trn ($3.2bn), amounting to more than half of GDP, according to the World Bank.
• It most likely will not matter which major party wins the 2012 general election from a
macroeconomic business standpoint. However, reining in inflation, the fiscal deficit, avoiding the
“Dutch disease”, developing fair environmental regulations and improving infrastructure remain
major challenges for the Government.

7. Thank you!