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BACK TO THE FUTURE
Key Challenges and Opportunities for Continued Growth in Mongolia
Randolph S. Koppa
President Trade and Development Bank of Mongolia
Mongolian Investment Summit Nov. 19, 2013
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PATHWAY
• Review of past four years investment and
development
• Current investment issues being addressed
• Near term opportunities and needs
• Attracting the needed foreign capital
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OCTOBER 2009: A PATH IS CHOSEN
• Signing of OT investment agreement
• Boost in Foreign investor sentiment
• Kick off of investment boom
• Race to the Future
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TOTAL FINANCING INVESTMENT NEEDS AND
OPPORTUNITIES 2010 TO 2015
• Mine Development $ 12 bn. to $ 20 bn.
• Infrastructure $ 8 bn. to $ 12 bn.
• Urban development $ 6 bn. to $ 8 bn.
• Agriculture $ 1 bn. to $ 2 bn.
• Industry and Commerce $ 15 bn. to $ 20 bn.
• Environment $ 1 bn. to $ 2 bn.
• Social $ 1 bn. to $ 2 bn.
• Financial Sector $ 1 bn. to $ 2 bn.
Totals: $ 45 bn. to $ 68 bn.
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POTENTIAL SOURCES OF FUNDS 2010-2015
• FDI $ 11 bn. to $ 14 bn.
• Domestic sources $ 12 bn. to $ 18 bn.
• Sovereign Borrowing $ 3 bn. to $ 6 bn.
• Foreign Capital Markets $ 11 bn. to $ 16 bn.
• IFI & Foreign bank Loans $ 7 bn. to $ 12 bn.
• Donors and NGOs $ 1 bn. to $ 2 bn.
Total $ 45 bn. to $ 68 bn.
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12.7
5.5
2.1
63.5
0.5
4
2.2
12.5
3.9
104.5
1.50
2
4
6
8
10
12
14
16
18
20
FDI Domestic Sovereign Foreign
Cap.Mkts.
Foreign
Loans
Donors
Received Pending To go
PROGRESS TO DATE
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GROWING GDP, DRIVEN BY INVESTMENT IN MINING
GDP GrowthGDP Growth(US$ bn)
Source: National Statistical Office of Mongolia
5.174.57
6.69
7.94
10.02
7.41
0
2
4
6
8
10
12
2008 2009 2010 2011 2012 3Q2013
GDP
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POVERTY RATE DECLINING
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NOT TO SOUND CLICHED, BUT…
• “If everything is so good, why am I feeling so
bad?”
• “The glass is half empty”
• “What have you done for me lately?”
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EXPORT REVENUES EASE AS MARKET SOFTENS
2.5
1.9
2.9
4.8
4.4
3.1
0.0
1.0
2.0
3.0
4.0
5.0
6.0
2008 2009 2010 2011 2012 3Q2013
Source: Bank of Mongolia, National Statistical Office of Mongolia; exchange rate of USD : MNT = 1655.44
Export SectorExport Sector
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FOREIGN INVESTMENT DROPPING
Foreign Direct InvestmentForeign Direct Investment
Source: Bank of Mongolia, National Statistical Office of Mongolia; exchange rate of USD : MNT = 1655.44
0.81.0
1.6
5.3
3.8
2.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
2008 2009 2010 2011 2012 3Q2013
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CURRENT ACCOUNT DEFICIT
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CAUSES OF MONGOLIA’S MALAISE
• Early growth based on ramp up of coking coal
production and OT build up. Infrastructure
lagged.
• China’s GDP growth slowdown from 10% levels to
7% levels changed commodity market dynamics.
• Populist and nationalistic rhetoric during
elections of 2012 and 2013 seemed to precipitate
some unfortunate legislative and other
government decisions seen as unfriendly to
investors, notably as related to OT.
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AN A380 FILLED WITH US 100 DOLLAR BILLS
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WILL IT BE THIS?
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OR WILL THIS FOIL THE TAKE OFF?
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MONGOLIA LOSES MARKET LEAD
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CHINA DEMAND SLOWDOWN IMPACTS
COMMODITY COUNTRIES GDPs BY 2025
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CHINA CAR PRODUCTION BOOMING
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ELECTIONS AND ECONOMIC GROWTH
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FIVE INTERDEPENDENT ISSUES
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A FORM COPIED IN NATURE
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WITH REGENERATIVE CAPABILITY
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POWER
• Electricity, a 1500 MW need
• 20 % from clean renewable
energy sources such as wind
• USD 1.2 billion CHP5
proceeding on PPP BOT
• USD 2 billion of new projects in
development
• USD 2 billion more required in
near future
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LIQUID ENERGY
• Need to reduce reliance on imports
• Mongolia has crude oil reserves and growing
production
• Coal to liquid and coal to gas projects in
development
• Coal shale has strong potential
• Potential to export energy or clean energy fuels
• Possible need USD 6 billion
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LINKING TO THE MARKET
Size 1,040 km
Investment US$ 5.0 bn
Time frame 2012-2016
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RAIL TRANSPORT
• Important 260 km link TT to border to be
completed end 2015. USD 200 million from Chinggis Bond as seed money.
• Feasibility studies for link for TT to Sainshand and north to Chinese and Russian connections
proceeding
• Aspire Mines in NW Mongolia seeking USD 1.3
billion for a 547 km 22mtpa line from Ovoot to Erdenet.
• Total funding needs: USD 6 to 8 billion
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ROAD
• ADB funded link to Chinese border
completed
• Chinggis Bond proceeds: USD 380
million applied to rural roads
• Chinggis Bond proceeds: USD 200
million for urban streets, mainly in
UB
• USD 1 to USD 2 billion more needed
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WATER
• Perhaps THE critical resource
• Although more is being discovered, potential
shortages loom for UB and the South Gobi mine areas.
• Transmission lines from northern rivers being pursued as an option
• Water efficient management system investments needed.
• Needs potentially USD 1 to 2 billion
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URBAN DEVELOPMENT
• Significant construction of housing in the past four
years
• 37054 new units completed in UB alone
• Estimated investment over USD 4 billion
• Approximately 30000 units and construction
• However, 184,000, or 60 % of households in UB are in
ger areas without connected heat and utilities.
• USD 7 billion of housing development still needed in
UB, plus USD 3 billion in other towns next five years;
further USD 10 billion will still be needed beyond that.
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INDUSTRIAL DEVELOPMENT
• There has been roundly USD 5 billion in
industrial, agribusiness and commercial sector funding of capital expenditure and expansion
but much more is needed such as for building materials, and value added agri products.
• A major new area is the value added minerals processing such as planned at Sainshand
• Coal to liquid and gas provides another major
initiative for import substitution and export.
• Potential need is from USD 15 to 25 billion.
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SOCIAL AND ENVIRONMENTAL
• Investment lagging behind in medical and
educational.
• Environmental protection and green
development in energy, mining and industry is
a priority.
• Funding potential of USD 5 billion
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FINANCIAL SECTOR
• USD 1.5 billion in outside funding attracted
• USD 5 billion may be needed in outside
funding of Tier 1 and Tier 2 capital, loan
growth, and mortgage backed securities
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MINING SECTOR
• Over USD 10 billion in FDI past four years
• Considerable debt also raised
• OT phase 2 will be USD 4 to USD 5 billion
• Unlimited potential depending on markets
and investment climate
• Estimated range from USD 15 to USD 25 billion
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TOTAL POTENTIAL INVESTMENT NEEDS AND
OPPORTUNITIES 2014 THROUGH 2018
• Mining USD 15 bn. to USD 25 bn.
• Infrastructure USD 11 bn. to USD 17 bn.
• Urban Development USD 7 bn. to USD 10 bn.
• Business Capex USD 15 bn. to USD 25 bn.
• Social & Environmental USD 3 bn. to USD 5 bn.
• Financial Sector USD 4 bn. to USD 5 bn.
• Totals USD 55 bn. to USD 87 bn.
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POTENTIAL SOURCES OF FUNDS 2014 THROUGH 2018
• FDI USD 14 bn. to USD 24 bn.
• Domestic sources USD 19 bn. to USD 28 bn.
• Sovereign Borrowing USD 4 bn. to USD 6 bn.
• Foreign Capital Markets USD 8 bn. to USD 13 bn.
• IFI & Foreign bank Loans USD 9 bn. to USD 14 bn.
• Donors and NGOs USD 1 bn. to USD 2 bn.
• Totals USD 55 bn. to USD 87 bn.
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DOMESTIC SOURCES NOT ENOUGH
• Budget capital spending to 20% of GDP
• Domestic government depth to 20% in GDP
• Bank CAPEX lending to 25% of total loans
• Business CAPEX investment grows to 20% of GDP
• MSE market cap grows from 12 % to 40 % of bank
debt as in other emerging markets
• Domestic debt market grows as pension and
other funds accumulate reserves
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FOREIGN PARTICIPATION CRITICAL
• Domestic sources are limited by debt to GDP and other norms and financial sector capacity.
• Foreign investors and lenders want not only good prospects, but stable investment laws, sound fiscal and monetary management, a strengthening legal environment, and continuous demonstration of open and fair treatment by the government.
• Trust still needs to be restored.
• Government pro private sector and pro foreign investment policies and strategies being propounded
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CONCLUSION
• Mongolia is facing a new reality
• Slower growth in China is a given
• A new strategy requires developing both
mining and industrialization in parallel
• Funding needs thus are higher
• Foreign investments from all neighbors is key
• The third neighbor policy for investment must
be affirmed
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BACK TO THE FUTURE
• Need to go back to get to the future
• Back to a strong third neighbor policy
• We have to get back on track
• We have to go Back to the Future
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Thank you for your attention!
Juulchin Street - 7
Baga Toiruu - 12
Ulaanbaatar, Mongolia
Tel: 976-11-31 99 43
Fax: 976-11-31 24 18
Email: [email protected]
http://www.tdbm.mn
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http://www.mongolianbusinessguide.com