New Investment Law Passed, Introduces Government Review of Foreign Investment

As one of the last actions of the Ikh Khural before the June 28 election, a new investment law was passed on May 17.

The details in this bill are still somewhat murky and some of raised the possibility that Pres. Elbegdorj might veto the bill to send it back to parliament.

The law as it appears to have passed is a softened version of earlier drafts. It appears to include a listing of “strategic” sectors that it applies to (clearly including mining), a minimum ownership threshold that triggers a review (49% apparently), a minimum transaction volume that triggers a review (100 billion tugrik, approx. C$75 million), as well as much lower thresholds for foreign investment by state-owned entities.

Discussion of this law was prompted or at least accelerated after news that Chalco, a state-owned Chinese aluminum-focused conglomerate was planning to take a majority stake in South Gobi resources, gaining access to South Gobi’s coal production at Ovoot Tolgoi. It is surely also no coincidence that this law has come up for discussion and has been passed less than three weeks before the election campaign officially begins.

This law tightens Mongolia’s very liberal foreign investment laws that had been established in the 1990s with advice from international organizations, especially the Worldbank. This liberal FDI regime had been intended to spur just such investment. Some Mongolian politicians may have decided that this incentive has served its purpose and was no longer needed, given the attractiveness of Mongolia as a mineral exploration and production location.

In many of its provisions, the new Mongolian investment law seems to resemble the Canada Investment Act, for example in that it identifies triggering tresholds such as the volume of the financial transaction, but also in identifying ‘strategic sectors’, perhaps a rough equivalent to the Investment Canada Act’s focus on investments “injurious to national security”.

I don’t imagine that this is what many people had in mind when Prime Minister Batbold started his term four years ago with an announcement that he was looking closely at Canada as a model for resource-based development.

About Julian Dierkes

Julian Dierkes is a sociologist by training (PhD Princeton Univ) and a Mongolist by choice and passion since around 2005. He teaches in the Master of Public Policy and Global Affairs at the University of British Columbia in Vancouver, Canada. He tweets @jdierkes
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