HomeReportsBureau of Economic and Business Affairs2023 Investment Climate Statements…Mongolia

# 					2023 Investment Climate Statements: Mongolia			

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													EXECUTIVE SUMMARY											

                -  EXECUTIVE SUMMARY 
                -  1. Openness To, and Restrictions Upon, Foreign Investment                    -  Policies Towards Foreign Direct Investment 
                  -  Limits on Foreign Control and Right to Private Ownership and Establishment 
                  -  Other Investment Policy Reviews 
                  -  Business Facilitation 
                  -  Outward Investment 
                -  2. Bilateral Investment and Taxation Treaties 
                -  3. Legal Regime                    -  Transparency of the Regulatory System 
                  -  International Regulatory Considerations 
                  -  Legal System and Judicial Independence 
                  -  Laws and Regulations on Foreign Direct Investment 
                  -  Competition and Antitrust Laws 
                  -  Expropriation and Compensation 
                  -  Dispute Settlement                      -  Investor-State Dispute Settlement 
                    -  International Commercial Arbitration and Foreign Courts 
                  -  Bankruptcy Regulations 
                -  4. Industrial Policies                    -  Investment Incentives 
                  -  Foreign Trade Zones/Free Ports/Trade Facilitation 
                  -  Performance and Data Localization Requirements 
                -  5. Protection of Property Rights                    -  Real Property 
                  -  Intellectual Property Rights 
                -  6. Financial Sector 
                -  Capital Markets and Portfolio Investment                    -  Money and Banking System 
                  -  Foreign Exchange and Remittances                      -  Foreign Exchange 
                    -  Remittance Policies 
                  -  Sovereign Wealth Funds 
                -  7. State-Owned Enterprises                    -  Privatization Program 
                -  8. Responsible Business Conduct                    -  Climate Issues 
                -  9. Corruption 
                -  10. Political and Security Environment 
                -  11. Labor Policies and Practices 
                -  12. U.S. International Development Finance Corporation (DFC), and Other Investment Insurance or Development Finance Programs 
                -  13. Foreign Direct Investment Statistics 
                -  14. Contact for More Information 

## EXECUTIVE SUMMARY

Mongolia’s frontier market and vast mineral reserves represent potentially lucrative opportunities for investors but vulnerability to external economic and financial shocks, ineffective dispute resolution, and lack of input from stakeholders during rulemaking warrant caution.  Mongolia imposes few market-access barriers, and investors face few investment restrictions, enjoying mostly unfettered market access.  Franchises such as fast food and convenience stores, outperforming expectations, suggest that investors can bring successful international business models to Mongolia.  The cashmere-apparel and agricultural sectors also show strong promise.  However, investing into politically sensitive sectors, including mining, carry higher risk.

Mongolia attracts investor attention but has trouble converting interest into investment. Unless and until Mongolia embraces a stable business environment that transparently creates and predictably implements laws and regulations, investors will likely find Mongolia too risky and opt for more competitive countries.  An essential step to mitigate these risks is for Mongolia to implement the U.S.-Mongolia Agreement on Transparency in Matters Related to International Trade and Investment (known as the Transparency Agreement), which requires a public-comment period before new laws and regulations become final.  Mongolia has implemented some of this agreement but is over five years behind full implementation of public-notice commitments.  Parliament, however, with its D-Parliament online platform, is leading the way in increasing public engagement and engaging the public in the rulemaking process, offering a model for the government.

Government and parliament continue to address threats to judicial independence by implementing 2019 constitutional amendments and 2020 statutory judicial reforms that have improved transparency and reduced political influence in the appointment and removal of judges.  Investors, however, continue to cite long delays in reaching court judgments, followed by similarly long delays in enforcing decisions, as well as reports that administrative inspection bodies, such as the tax authority, sometimes fail to act on politically sensitive decisions or cases involving politically exposed Mongolians.  Businesses note substantial and unpredictable regulatory burdens at all levels; and cite an excessively slow tax dispute resolution process as an indirect expropriation risk. Investors are particularly concerned about a tax process that they believe effectively lets officials issue excessive, confiscatory tax assessments to coerce settlements. Finally, the perception that the government favors its own state-owned entities over private sector companies discourages existing investors from expanding, and new investors from coming.  More positively, parliament has streamlined procedures for, and reduced the required number of, permits and licenses while the Government has moved delivery of most services onto digital platforms, increasing efficiency of its business registration processes.

COVID-19’s aftermath and Russia’s invasion of Ukraine stressed Mongolia’s economy.  In late 2021, Mongolia’s parliament passed its New Recovery Policy, a 10-year development plan to increase national productivity by improving transport logistics, energy production, industrialization, urban and rural infrastructure, and green development.  This program depends on restoring market access for mining exports, the primary revenue source. Relaxation of PRC border restrictions in late 2022 has eased bottlenecks along the Mongolia-China border, increasing export revenues and relieving near term fiscal and balance-of-payments risks.  Meanwhile, Russia’s unprovoked invasion of Ukraine, prompting unprecedented international sanctions on Russia, continues to contribute to uncertainty about access to critical imports, such as petroleum products, electricity, and such key commodities as wheat and fertilizer.