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Abundant natural resources and a stable legal system make going into Mongolia a no-brainer
The 21st century will see the rise of countries that have been ignored or considered insignificant for ages by the transatlantic world. Mongolia certainly falls into that category. Since 2009, the sleepy capital of Ulaanbaatar has been transformed into a major destination for investment bankers, chief executives, lawyers and accountants, all seeking to participate in Mongolia’s investment opportunities.
Partners from New York and London law firms have visited the country on fly-in, fly-out trips, trying to compete with those that have already made a commitment. What is the cause of this transformation?
The simple answer is that Mongolia sits on mountains of gold, copper, coal, silver, iron, uranium and rare earth elements. In previous decades global commodity prices did not justify the capital cost of getting these metals and minerals out from under the ground and out of the country. This situation has changed in the past five years.
Another explanation is that the country borders China, which has a voracious appetite for all the resources Mongolia has to offer. In the view of many Chinese movers and shakers, it makes little sense to invest in faraway places such as the Congo, Bolivia or Australia when such resources exist right next door. This, in turn, encourages major mining companies from the four corners of the globe to pursue multibillion-dollar investment projects to mine the resources and feed China’s growth.
Probably an overlooked reason for this international interest is Mongolia’s political culture and its system of law. The country made a bloodless transition to participatory democracy in 1990 after a series of student protests in Ulaanbaatar’s main gathering place, Sukhbaatar Square.
The 1992 constitution inaugurated a period of politics where open, raucous and sometimes violent debate replaced the purges and secrecy of the Soviet era.
Mongolia’s legal system is based on the German civil code and embraces concepts such as the freedom to contract and a constitutional guarantee for compensation in the event of governmental expropriation. Not all legal systems in Asia aspire to these standards.
This does not mean it is all smooth sailing. Mongolia is, after all, a frontier jurisdiction with a nascent sense of the rule of law. The Parliament of Mongolia has passed laws that are not always completely thought out, as demonstrated by the Strategic Investment Law that came into effect on 17 May.
Populist sentiments make for easy campaign slogans and on 28 June Mongolians will go to the polls in a general election. This has brought out the rough and tumble of Mongolian politics. It is a cause of unease for some investors at the moment, but Mongolian politics support Winston Churchill’s observation that democracy is the worst possible form of government – except for all others.
Despite these uncertainties in the political arena Mongolians of all political stripes will not change direction and turn their back on foreign investors, as prophesied by some doomsayers. Rather, there are three stable elements that bode well for the country: Mongolia needs foreign capital and technology; the world needs Mongolia’s resources; and there’s gold in them thar hills.