http://www.mad-mongolia.com August 4, 2013
Mongolian political life in the first half of the year was relatively calm with 3 key events. Firstly, the passing of the highly anticipated laws, such including the much discussed SEFIL law (FDI Law) and the new Securities Law in April and May respectively, and the swearing in of two new parliament members
Secondly, Mongolia hosted the 7th Ministerial Conference of the Community of Democracies was held from 27th to 29th April 2013 in Ulaanbaatar. Finally and clearly the main political event of the first half of 2013 was the presidential election, which was won by the incumbent President, Mr. Elbegdorj.
The amendments to the SEFIL Law have largely been welcomed by both the foreign investors and the domestic business community as a positive sign. Previously private and government enterprises buying a 49% or greater stake in an enterprise operating in strategic sectors had to obtain parliamentary approval. Article 4.7 of the previous Law of Foreign Investment in Business Entities Operating in Sectors of Strategic Importance (SEFIL), enacted by parliament on 17 May 2012, states “Parliament must approve an acquisition submitted by the Government when a foreign investor acquires more than 49% of the equity of a business entity operating in sectors of strategic importance and the investment exceeds 100 billion MNT. All other acquisitions are subject to the approval of the Cabinet.” The amended SEFIL law eliminates the need for parliamentary approval for private enterprises substituting it with cabinet approval. These amendments significantly shorten the time required for approval and separate business decisions from political influence.
The long-awaited new securities law should to provide an overall legal framework for all types of capital market transactions. The new law introduced several new concepts such as custodial banking, depositary receipts, beneficial and nominee shareholders etc. Such concepts and the fact that the law itself is compliant with most major jurisdictions’ securities law will enable large strategic mines such as much anticipated Erdenes Tavan Tolgoi (ETT or TT) and Oyu Tolgoi (OT) to double or even triple list on different markets. The passing of the new law and listing of major mines should provide the kick for the MSE requires to go to the next level. However it is highly unlikely that the MSE will see much action at least until the second half of 2014 as the law only comes into effect on January 1st, 2014. Practically speaking, listings take time and as the image of Mongolia among investors was affected by the previous iteration of SEFIL Law; it will take certain amount of time to reverse the damage already done, although thankfully this image repair work is already under-way.
The final two members of the Great Khural (National Parliament) were sworn in 11 months after the 2012 parliamentary election and brings the total number of MPs to the full complement of 76. The Mongolian People’s Party (MPP)’s D. Sumiyabazar won a re-election in late April, 2013 and Mr. Zorigt, Democratic Party (DP), whose original election was disputed by the MPP and resolved in court, were both sworn in on the 10th of May, 2013. As a result the DP holds 34 seats, the MPP holds 26 seats and Justice Coalition of Mongolian People’s Revolutionary Party, (a MPP break-away party) and Mongolian National Democratic Party hold 11 seats and other parties and independents hold 5 seats. Analysts agree that such a turn of events is a sign that the two main parties have achieved agreement and are both ready to move forward leaving behind election related skirmishes.
One of the main international events this spring was The 7th Ministerial Conference of the Community of Democracies which was attended by 1,215 representatives including leaders and presidents from more than a hundred countries. Burma’s pro-democracy leader and Nobel Peace Laureate, Aung San Suu Kyi and the youngest Nobel Peace Laureate, Yemeni activist, Tawakkol Karman were among those who participated. The event showed that Mongolia is committed to democracy values and open market principles.
First of all, the government should serve its citizens. Second, the government should implement the law. The biggest test for any government worker who succeeds in gaining a career promotion is the ability to obey and implement the law. This is the issue.” Ts.Elbegdorj, President of Mongolia, at the 7th Ministerial Conference of the Community of Democracies
The most important event of the first half year was clearly the presidential election. The result of the election was considered to be somewhat predictable as surveys conducted by third party organizations prior to election-day showed that the Democratic Party (DP) and its candidate, incumbent President Elbegdorj had a significant lead, as large as 19.2% support for Elbegdorj, 2.1% for the MPP candidate and extremely high undecided voter numbers at 78.7%, just a few weeks out from election day. This un-decided vote was especially high in urban areas. The MPP chose a former wrestling champion Mr. Bat-Erdene as its presidential candidate who was more popular rural areas and is a vocal advocate for environmentally conscious sustainable mining.
The DP candidate and current President Mr. Elbegdorj won the election with 50.23% of the primary votes and Mr. Bat-Erdene came in second with 41.97%. The results were closer than expected, perhaps signaling that the people will demand stricter environment monitoring policies towards mines and accountability from the ruling party. The election results were recognized as official by parliament on the 1st of July, 2013 and the inauguration ceremony took place on 10th of July on the eve of the Naadam festival.
The election of Mr. Elbegdorj means that DP will hold the 3 major offices in the Mongolian government; President, Prime Minister, and Speaker of the Parliament. They also, as stated above, hold the majority in parliament. Additionally the DP controls the Ulaanbaatar City Council. The fact that all major powers have been gathered in the hands of a single party should provide certain stability and continuity to Mongolian politics.
Mr. Elbegdorj, a Harvard graduate, has always been a vocal supporter of foreign investment in Mongolia and played a major role in finalizing the Oyu Tolgoi investment agreement. In addition, the DP has always been seen as more pro-business and investor friendly than the opposition which gives us grounds to assume that the next several years will be favorable for foreign investors.
We have seen a short-term decline in FDI of 41% YoY and decline to GDP Growth by 4% to 6% YoY through Q1, 2013. However with the commencement of commercial production at Oyu Tolgoi, the new affordable mortgage program of the Government, the passing of revised FDI laws, the new securities laws and the continued easing of monetary policy, it is fairly certain that in the second half of 2013 and beyond we will see higher growth numbers reaching low-to-mid double digits for the next three to five years, in a return to pre- 2012 election world-beating growth numbers.