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Despite abundant reserves of coal and rich potential for wind, solar and hydroelectric power, Mongolia has lagged in exploiting its natural resources. From generation to transmission to distribution, the country’s power infrastructure is outdated, and reliance on foreign imports is growing. Aware of this, the government has been pushing to fast-track a range of projects that, if successful, should reduce the country’s dependence on any one supplier, and may in time sprout an industry in its own right. The state is now planning to upgrade its power distribution network, is trying to attract private investment to greenfield plants, and is gradually liberalising trade tariffs and creating new laws to spur exploration for crude oil. The state’s energy plan aims to reach 100% electrification by 2020, up from about 65% in 2013, despite the difficulty of spanning Mongolia’s huge, yet sparsely populated, landmass. Production of crude oil in the country’s two eastern blocks jumped from 2.2m barrels in 2010 to 3.9m in 2012, and is set to almost double in the medium term. Attracting private investment to new initiatives will be key to helping Mongolia develop its abundant natural resources – fossil fuel-based and renewable – into the energy it needs to reach its goals. This chapter contains interviews with B. Unenbat, CEO, Newcom; John Lee, President & CEO, Prophecy Coal; and R. Batbayar, President, M. Oil.

The mining sector is a major contributor to the local economy, accounting for 22% of GDP, 61% of industrial value-added, 94% of exports by value and 85% of foreign direct investment in 2012, according to figures from the National Statistics Office. Mongolia’s main proven reserves include coal, copper, hard-rock and placer gold, silver, iron ore, molybdenum, fluorspar, zinc, tungsten, lead, tin, uranium and rare earths. Key challenges include inadequate rail infrastructure connecting mines to target markets, a shortage of processing facilities and the fact that the majority of exported coal is semi-soft. While ebbs and flows in the regulatory framework have caused concern over the authorities’ respect for contract sanctity, in 2013 the government appeared intent on clarifying the long-term framework in an effort to restart investment. While global commodities markets are set to remain challenging in 2014, Mongolia’s strong natural fundamentals and location near major demand centres are set to continue attracting investors. This chapter contains interviews with Jean-Sébastien Jacques, Chief Executive of Copper, Rio Tinto; Ya. Batsurri, CEO, Erdenes Tavan Tolgoi; and D. Dumba, President, Mongolian National Mining Association.

Mongolia’s insurance industry is expected to grow rapidly over the next few years as the economy expands and more firms and individuals become familiar with insurance products and the need to be covered. The market is open – a rarity in Asia – and international investors and strategic partners are taking a close look at potential acquisition targets and partners. With the state controlling the insurance sector until 2003, and the population largely rural, many individuals remain unaware of what insurance is and now it works. However, this is changing, and the arrival of multinational firms has resulted in a rising awareness of insurance products. The prospects for the sector are excellent. If consolidation takes place and if insurance awareness increases as expected, margins will be solid and growth almost certain.

For the Mongolian Stock Exchange (MSE), 2013 was a year of transition. While performance remained weak and trading was exceedingly thin, preparations were being made for a comeback. The hope is that the foundation has been set to make 2014 a year of recovery for the market. Under previous legislation custodian banking was not available; however, under a new law, international investors will not have to worry about the risks associated with investing in a market with no intermediary banking institutions. Despite having 79 registered brokers, only one firm oversees almost all trading on the MSE. In addition, risk management has not been well-developed and understanding of stocks is low among the general public. What is now needed most is for new issues to come to the market, and this will depend on the ability of the regulators to put new laws into practice. This chapter contains an interview with Masa Igata, Founder & CEO, Frontier Securities.

Mongolia’s banking system is relatively young and untested, and, therefore, the Central Bank of Mongolia is facing a range of challenges. One such example is the rapid drop in the tugrik, which lost approximately 20% of its value over the past year, placing pressure on the banking system but also reducing the price of exports. Currently, there are no limitations placed on foreign ownership of banks, nor are there capital controls, and two banks are 100%-owned by foreign companies. The key to the future for the Mongolian banking sector is good corporate governance and sound supervision, while the challenge for the central bank will be to return to a traditional role, draining liquidity from the system, and easing back on policies without compromising the system’s strength. Developing financing for smaller companies will also be key to ensuring Mongolia’s long-term economic growth. This chapter contains interviews with Randolph Koppa, President, Trade and Development Bank; and Ayumi Konishi, Director-General, East Asia Regional Department, Asian Development Bank.

Having an estimated $1.3trn in mineral deposits at current market prices, Mongolia holds great promise for investors. With GDP standing at just $10.3bn in 2012, a single large project has the potential to significantly boost foreign direct investment and growth. The core budget deficit declined from $319m in 2012 to $178m in 2013, equal to 1.7% of GDP; however, off-budget spending was rising. The government has announced plans to re-launch the privatisation process, with the aim of reducing the number of state-owned enterprises by one-third. Future economic growth will depend on the success of a range of measures aimed at improving economic conditions and sustainability. This chapter contains interviews with P. Tsagaan, Chief of Staff, Office of the President; Ch. Ulaan, Minister of Finance; Jim Dwyer, Executive Director, Business Council of Mongolia; and B. Byambasaikhan; Managing Partner, NovaTerra LLC, and Chairman, Business Council of Mongolia.