The upcoming Mongolian parliamentary elections are no different to other elections in all democratic nations in that they have created a great deal of uncertainty in the preceding few months and have seen all parties contesting the election make statements aimed at gaining votes. There are similar policy statements being made in Indonesia at present before presidential elections and these are having similar impacts.

It is well known that Mongolia is very well endowed with mineral riches but the vast majority of these riches in coal, copper, gold, iron ore, uranium and many other minerals are still in the ground and it is going to take major investments by mining companies to get them out and move them to the appropriate markets. Without foreign investment this appears unlikely to happen as quickly as it has been – if at all.

Mongolia has one of the world’s fastest growing economies with growth in 2011 being double that of China while average per capita income was up to US$3070 in 2011, is expected to be US$5047 this year and US$7204 by the end of 2014. In 2006 foreign direct investment (FDI) was US$366.5 million and this year is expected to be US$4.986 billion, with the bulk going to the mining industry.

However, the uncertainty created by political statements out of Mongolia in recent months has been unhealthy for ongoing stability in the emerging country, particularly for FDI, which has largely been put on hold at a crucial time. The new law passed by the Mongolian Parliament on May 24 has provided some clearer headlines for Mongolia-bound investors on the new investment law. Economic commentator Oliver Belfitt-Nash, who is head of research at Monet Capital Investment Bank in Mongolia, says the new bill has brought businesses together and watered down the fear. It also promises to give the voters what they demand while keeping corporates in on the deal. He says the effects are yet to be seen but Chalco’s market-premium acquisition of SouthGobi Resources is looking unlikely.

The new law requires both government and parliamentary approval for any foreign investments worth more than 100 billion tugriks (US$76 million) that buy a stake of more than 49% in businesses in certain strategic sectors – mining, banking and finance, and media and telecommunication. It has been softened significantly from an initial version that would have limited foreign stakes to 49% in wide swathes of the economy, including sectors as varied as food, transportation and real estate.

The new regulations will still slow the pace of foreign investment but investors have expressed some relief at the final version of the law, which has a narrower scope and does not apply to transactions that occurred before the law was passed. “It’s a good law for Mongolia and provides stability and clarity for investors,” says Eric Zurrin, chief executive of ResCap, a Mongolian investment. “This brings Mongolia more in line with mature, resources-rich economies like Australia and Canada.”

Business Council of Mongolia executive director Jim Dwyer told delegates at Coaltrans Mongolia in late May that the new law was not perfect but was responsible. “The parliament did not cave in to the usual suspects, but rather in its reviewing of the FDI proposals, it sought advice from the Business Council and other organizations and in the end behaved as responsibly as they could.”

In a statement, Australian explorer Aspire Mining says the new law does not limit foreign direct investment but does set up a process of review and approvals for significant investments into those industries of strategic importance. The approvals regime is based on the following levels of investment:

• All FDI in excess of 5% in an entity operating in a sector of strategic importance must register with the Foreign Investment Agency of Mongolia (FIA).

• FDI in excess of 33% in an entity operating in a sector of strategic importance must receive Government of Mongolia approval.

• FDI in excess of 49% in an entity operating in a sector of strategic importance and in excess of 100 billion MNT (about Aus$75 million), requires approval from the Mongolian Parliament.

• FDI made by a company with state ownership will require Government of Mongolia approval.

Aspire says the enacting of this foreign investment law now provides legislative certainty surrounding future FDI into Mongolia and in particular into its rapidly growing resources industry. It says the regime is not dissimilar to regimes enacted in other resource rich jurisdictions such as Australia and Canada.