MONGOLIA

What worked for Mongolia in 2011 isn’t working now. The nation, once dubbed Minegolia for sitting on what the International Monetary Fund has estimated is $1 trillion to $3 trillion in mineral wealth, has seen its attractiveness as an investment destination wane as global miners rein in spending. 

On top of that, disputes with foreign investors such as Rio Tinto Group over the development of the Oyu Tolgoi copper and gold deposits continue to weigh on its reputation. And the seemingly unique advantage of sitting on the doorstep of the world’s biggest buyer of commodities, China, is now looking more like a liability given the marked slowdown in the world’s second-biggest economy.

While there’s no quick fix to Mongolia’s recent travails -- it has burned through much of its foreign currency reserves and the government has a crushing debt burden -- the country can mend things by improving the laws, regulations and bureaucracy that prevent it from being globally competitive, according to an industry analyst and former chief of Oyu Tolgoi LLC.

“The government doesn’t have money to throw around or to subsidize its industries, so the only thing it can do is to make sure its policies and its administration are absolutely fine-tuned to the world’s best practice,’’ Cameron McRae, executive chairman of Tarva Investment & Advisory, said by phone.

Mongolia earlier this month declared an economic crisis after leaders in Ulaanbaatar took to national TV to outline the country’s deteriorating debt position, cash reserves and budget deficit. Prime Minister Erdenebat Jargaltulga has since announced an austerity program, which includes government pay cuts and spending halts on projects.

To woo back investors, Erdenebat signaled he would establish a council to promote foreign investment. The details of how the council will operate have not been announced.

The restart of the second phase of the giant Oyu Tolgoi project, signed in Dubai in May 2015, was expected to ease the cash crunch. However, the net effect of the copper and gold mine has yet to be felt across the country.

“The government was saying that everything is OK, and everything will improve in a matter of months once the Dubai agreement will come into force, but now it’s become clear that it’s not so easy and it’s not going to improve drastically in just a few months,’’ Khashchuluun Chuluundorj, an economist for the National University of Mongolia, said by phone.

The FDI drought extends beyond Mongolia, said Sam Spring, chief executive of Kincora Copper Ltd., which does business in the country. “The global commodity sector largely remains capital constrained and it will take time for potential improving sentiment to flow through the sector and into the more earlier stage projects,’’ Spring said.

Read more at:http://www.bloomberg.com/news/articles/2016-08-24/free-falling-mongolia-won-t-be-saved-by-commodity-price-revival