Foreign Investment Considerations in Canada Resemble Mongolian Law

When the Mongolian parliament passed a foreign investment law somewhat hastily in May 2012, partly in response to the proposed purchase of a majority of coal miner South Gobi Resources by CHALCO, this led to a fair bit of tut-tutting in the investment community. To many investors, this seemed like a threat to their ability to cash in on investments in Mongolia that have attracted some attention with frequent headlines such as “Mongolia fastest growing economy in 2011”.

Given the  lack of liquidity and diversification beyond mining in the Mongolian economy, investments in foreign mining companies seem like the obvious way for many investors to participate in the Mongolian boom. Yet, such investments are somewhat predicated on the ability of mining companies to participate in M&A activities to cash in on the value of their resources or production capacity. The foreign investment law limits the opportunity for such activities.

When the law was passed, it already reminded me of Canadian legislation that restricts foreign ownership and thus also foreign takeovers of resource companies. Often this legislation is justified in national security terms or with reference to a need to protect “national champions” with headquarters in Canada to protect economic development from a hollowing out by foreign owners. While the Harper government was already challenged by the proposed takeover of Potash, discussions have resurfaced recently with the CNOOC bid for Nexen.

The most recent twist in these discussions (see for example the Globe & Mail on Oct 23) suggests a two-track investment review process that distinguishes between state-owned and private investors as owners of Canadian assets, presumably being more lenient in decision on private investments and more cautious with the approval of investments by state-owned (primarily, but not exclusively Chinese) entities.

That is a distinction that is quite prominent in the Mongolian investment law as well in distinguishing state-owned from private investors and requiring different review processes for these different investors.

Surely, decisions like the current discussion in Canada give a lot of legitimacy to Mongolian moves to restrict foreign investments. Those who attack Mongolian moves in this regard should consider that similar policies are deemed legitimate, at least if they’re based in Canada.

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 toots
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