19.04.2013 About regulation on FDI, S. Javkhlanbaatar

FOREIGN DIRECT INVESTMENT

REGULATIONS IN MONGOLIA

Javkhlanbaatar Sereeter

Director, Foreign Investment Regulation and Registration Department

Ulaanbaatar, 2013-04-19

MINISTRY OF ECONOMIC DEVELOPMENT

Content

What Are the Main Regulations of FDI?

How Does FDI Perform?

How Does Mongolia Protect Foreign Investment?

Foreign Investment Legal Framework

International

Agreements

Bilateral Investment

Protection Agreements

National Laws on

Foreign Investment

1. Washington Convention on

Investment Dispute Settlement

2. Seoul Convention on Investment

Insurance

3. WTO Agreements (including TRIMs)

Most-Favoured Nation Treatment

Foreign Investment Legal Framework

International

Agreements

National Laws on

Foreign Investment

• Mongolia has a Bilateral Investment

Protection Agreement with 43

countries.

Bilateral Investment

Protection Agreements

Foreign Investment Legal Framework

National Laws on

Foreign Investment

International

Agreements

Bilateral Investment

Agreements • The Foreign Investment Law of

Mongolia (1993)

• The Law Regulating Foreign

Investment in Entities in the

Strategic Sectors (2012)

Foreign Investment Legal Framework

The Foreign Investment

Law of Mongolia

National Treatment

No-Expropriation

Free Repatriation

Foreign Investment Legal Framework

The Law Regulating Foreign Investment in

Entities in the Strategic Sectors (2012)

Certain Thresholds

Acquisitions &

Transactions

Approval from the Govt.

& Parliament

1. Mining

2. Banking & Financing

3. Media &

Telecommunications

DB 2013 Rank DB 2012 Rank Change in Ranks

Economy 76 88 12

Start up business 39 95 +56

Dealing with

construction permits

121 121 No change

Getting electricity 169 168 -1

Registering property 22 24 2

Getting credit 53 67 14

Protecting investors 25 29 4

Paying taxes 70 65 -5

Trading across

borders

175 174 -1

Enforcing contracts 29 29 No change

Resolving

insolvency

127 130 3

Doing Business Report 2013

Doing Business Report 2013

2010 2011 2012

Total FDI inflow USD1,026bln USD4,9bln USD3,9bln*

Number of

countries59 66 59*

Number of newly

established entities769 933 774

Number of

dissolved or

deregistered as

foreign invested

companies

214 233 156

Foreign Direct Investment

(*) preliminary data

Foreign Direct Investment by Sectors

73.9%

16.3%

1.5%0.9%

0.9%

Geological prospecting, oil exploration & mining

Trade and catering services

Bank and financial services

Light industry

Engineering construction and production of construction materials

FDI trends and impact

A mining-led FDI boom

Source: UNCTAD FDI/TNC Database and UNCTAD report of Investment Policy Review

2001: Oyu Tolgoi discovers

mineral deposit

2005: Oyu Tolgoi project

receives approval

2008: Oyu Tolgoi completion

of first construction phase

2010: Oyu Tolgoi construction

budget of $758 million

2011: Oyu Tolgoi progression

Total FDI Non-mining FDI

0

1000

2000

3000

4000

5000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

$ million

FDI impacts

FDI

88%

gross fixed capital

55% of

GDP

17 % employment

180 000 jobs

50% of

Tax revenue

UNCTAD report “Investment Policy Review” FDI data 2011

Key Obstacles

From the Action Plan of the Government:

Lower interest rates to single digits;

Improve infrastructure;

Introduce single window policies in export;

Reform housing finance system;

Implement job creation programs;

Implement reforms at border crossing point ;

Action Plan

Type of Bond First Ever Government Sovereign Debt Bond

Issued Period November 2012

Credit Rating of Mongolia BB- (S&P)/ B1 (Moody’s)/B+(Fitch)

Volume of Bond $1,5 billion out of $5 billion

Period 5 years for $500 mln, 10 years for $1 bln

Registered Stock Exchange Singapore Stock Exchange

Coupon Rate4.125% for 5 year bond

5.125% for 10 year bond

Investment Purpose To finance important projects in infrastructure and manufacturing

17

Chingiss Bond

Projects financed

Projects Amount of Investment

Inter-aimag auto roads/1400 km/ MNT570 bln

Tavan tolgoi power station USD 50 mil

Engineering infrastructure in UB MNT415 bln

“Street Project” in UB USD 200 mln

New railway project USD 200 mln

Support to cashmere industry MNT 95 bln

Infrastructure development in Zamyn-Uud port MNT 33 bln

Support to the Mongolian Mortgage Corporation MNT 10 bln

Strategic objectives for FDI

A new role for FDI as catalyst for diversification based

on three pillars:

Geographical diversification – to promote regional

development and the crowding in of domestic

investors

Source country diversification – to reduce

dependency on a small number of FDI-supplying

nations

Sectoral diversification - to generate economic

growth outside of mining;

UNCTAD report “Investment Policy Review”

FDI Strategic agenda

Restore legal certainty in the foreign investment

legislation

Close regulatory and implementation gaps in the

investment climate

Address key governance issues

Use FDI to tackle the infrastructure challenge

Acquire the skills needed for economic diversification

Use FDI to develop tourism

Use mining as a growth pole

Promote SME development and entrepreneurship

Adopt modern investment promotion techniques and

infrastructure

UNCTAD report “Investment Policy Review”

Foreign Investment Legal Framework

• Mining

• Banking & Finance

• Telecommunications & Media

Sectors with conditions/Strategic

• Except Strategic SectorsSectors with no

conditions

SURVEY ON FOREIGN DIRECT INVESTMENT

RESTRICTIONS IN THE SELECTED COUNTRIES

Country Strategic

Sectors

Organizatio

n of

authorizatio

n

Transactions

needed approval

Thresholds

for Approval

Duration

for

Reviewing

Application

form for

approval

Mongolia 1. Minerals

Sector

2. Banking

and Financing

Sector

3. Media and

Telecommunic

ation Sector

Parliament

Or

Cabinet

Note:

Parliament

approves

acquisitions

over 49% by

only state

owned entities

upon the law

amendment

-49% or more of total

equity when the

amount of transaction

exceeds 100 bln MNT

-34% or more of the

total equity/shares of

national entities

-51% or more of

management

-Monopoly cases in

the relevant markets

49% &100bln

MNT for

Parliament

approval

34% or more for

Cabinet Approval

90 days

In a written form

Australia 1. Media

2.

Telecommunica

tion

3. Transport

4. Army

equipment&

Human

resource supply

5. Nuclear

energy&

uranium

6. Real estate

Treasurer

Foreign

Investment

ReviewBoard

-To acquire or sell of

shares and equities of

domestic entities

-To acquire real estates

-Obtaining majority of

Voting Management

-Owner’s change and

rearrangement of the

contract

-any investment by

foreign governments

and related entities

More than 5% of

shares in the media

sector

15% in other

sectors

244 miln. AusD as

2011

53 mln.

AusDdeveloped

commercial real

estate

5 mln. AusDreal

estate if heritage is

subject

30 days

If necessary

extended until

90 days

Online

SURVEY ON FOREIGN DIRECT INVESTMENT

RESTRICTIONS IN THE SELECTED COUNTRIES

Country Strategic

Sectors

Organizati

on of

authorizati

on

Transactions

needed

approval

Thresholds

for Approval

Duration

for

Reviewing

Application

form for

approval

China 1. Mining

2. Banking

3.

Telecommunication

4. Light Industry

5. Electric power

6. Insurance

Office of

Commerce

and Industry

More than 15%

Russia 1. Defense

2. Energy

3. Air force

4. Cosmology

5. Mining

6. Radio

Communication

7. Television

8. Publishing

Industry

9.

Telecommunication

Government Acquisition of

shares more 50%

from stock

exchange or

investin 50% equity

of a strategic

company of Russia

If foreign investor

is aState owned

entity the threshold

is 25% each

If the sector is

Mining, the

threshold is 10%

-10%

-25%

-50%

1 month

If necessary

with extension

till3 months

SURVEY ON FOREIGN DIRECT INVESTMENT

RESTRICTIONS IN THE SELECTED COUNTRIES

Chile 1. Mining

2. Transport

3. Telecommunication

4. Agriculture

5. Construction

6. Forestry

7. Electricity

8. Processing Industry

Prohibited sectors:

-air transport

-press and media

-maritime industry

Central Bank of

Chile

registersinvestm

ents for 10.000-

7.5 million USD.

Foreign

Investment

Committee shall

approve shares,

technology,

assets of more

than 2.5 million

USD more than

5 million USD

investment.

-Acquisitions of

national assets

-Change in

shareholders

and in contracts

10.000 USD 120 days Online

The

Republic of

Korea

Prohibited Sectors:

1. Postal Services

2. Legal Services

3. Management of

Financial Market

4. Education

5. Political and Labor

organizations

6. Nuclear Energy

Restricted Sectors:

1. Wheat and crop

harvesting

2. Beef farming

3. Fish farming

Ministry

Invest Korea

Acquire shares

and stocks

Merging

Change in owners

and contracts

Above 10% of

stock

More than 100

million Won

Max share in

some sectors

are

25%, 30% or

50%.

7-90 days Online

Type of

legal

documents

Strategic

sectors

Permits from

Parliament

Permits from

Government

Transactions

without permits

For State

owned

company

Terms of

obtaining

permits

Laws 1. Mineral

2. Banking and

Finance

3. Information

and technology

49% and above 100

billion tugriks

For private

investors 34%-

49% and lower

than 100 billion

tugriks

1%-34% for

private investors

1%-100% all

must have

permits

For Parliament

level is

uncertain, for

government

level till 90

days.

Regulation Relies business

activities

According to the

related regulations, it

will be issued by

Government and

then will be

presented to the

Parliament

The MED will take

applications and

then proceed to

the Cabinet

Secretariat and

get the decision to

inform investors.

According to the

Foreign

investment law,

Ministry of

Economic

Development is

in charge of this.

1%-49% and

lower than 100

billion tugriks ,

approval will be

issued by the

Cabinet

meeting

If higher than

this, it will be

issued by the

Parliament.

The

Government will

issue approval

within 30 days

but it can

extend to 90

days by the

Law.

INVESTMENT REGULATIONS ON STRATEGIC SECTORS

Expectations from FDI

Job creation

Technology transfer

Value addition

Different Sectors

Environment Friendly

www.investmongolia.com

javkhlanbaatar@med.gov.mn