Regulating Foreign Investment Directly?

One of the questions that is emerging out of the recent announcement of a review of South Gobi’s mining license (transparently in reaction to an announced sale of South Gobi to CHALCO) is whether we will see an increase in resource populism in the upcoming campaign and whether this will suggest that laws to regulate foreign investment directly (rather than through mining licenses which has been the pattern in the past) is on the horizon.

My suspicion on both fronts is increasingly, yes, we will see more populist arguments in the campaign, and yes, legal changes regulating foreign investments may be on the horizon, but both developments are far from certain and are closely tied to the election (campaign) itself, so if they are not immediately visible during the election or in the immediate months after the Ikh Khural reconvenes with its new membership in September, this may pass.


There is no doubt that individual politicians campaigning for seats in the upcoming election will use populist arguments (à la, “the foreigners are taking our gold!”) in the campaign. Arguments of this kind have been made during previous elections and from sitting parliamentarians (though typically MPs without access to executive decision-making).

The 2008 election bidding war between the then-MPRP and DP over how large a cash payment (resource dividend) individual citizens should receive (“I’ll distribute 1,000,000 TG!” “Ha, you will receive 1,500,000 TG, if you elect me!”) is a relatively benign version of this kind of argument, but much of the rhetoric around the 1/3 share of ownership of the OT project and the decision not to sell the TT project is built on similar populism.

I still think that it is unlikely that party platforms, at least of the dominant DP and MPP, will embrace these kind of arguments, but will not be surprised at all if a number of individual candidates will turn this way to build their profile and bolster their electoral chances.

It remains to be seen and it will be highly determinant of future policies how many individual politicians embrace populist rhetoric and how openly they will do so in going how far?

Policy Changes for Foreign Investment

In the past, the mining license has been used as the main tool to regulate foreign investment. In the cases where (Canadian) investments have run into some regulatory trouble (Western Prospector, though its sale ultimately went through; Centerra Gold, now trying to move to construction/development of its Gatsuurt deposit; Khan Resources; now, South Gobi) the resources authority has relied on (revocation of) mining licenses as the primary policy tool. This is partly due to the fact that foreign investment was liberalized during the 1990s shock therapy days, but specifically in the 1997 Mining Law.

Current discussions suggest that legislative changes could be on the horizon that would regulate foreign investment in mining projects directly. Judging by their most recent press release, this is a possibility that Ivanhoe Mines seems to be foreseeing. The designation of a “strategic asset” that also provided the lever to insist on partial state ownership of OT, could be used in this regard to create a process of review for all foreign resource ownership.

This would all be quite familiar to would-be foreign investors in Canada’s resource sector, of course, as Canada has long insisted on restrictions of foreign ownership of resource assets, witness the 2010 BHP bid for Potash as one of the most prominent examples.

Conversely, any discussions of ownership restrictions may lend additional urgency to the Canadian government’s desire to conclude a bilateral Foreign Investment Protection Agreement (FIPA) with Mongolia that has been under negotiation since 2009, though with no publicly announced progress made.

As with many posts at the moment, I wish I was in Mongolia to get a more direct sense of current discussions and am very much looking forward to my visit there during the parliamentary election (campaign) in June.

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 and tweets @jdierkes
This entry was posted in Canada, Elections, International Relations, JD Mining Governance, Mining, Mining, Oyu Tolgoi, Politics, Populism and tagged . Bookmark the permalink.

2 Responses to Regulating Foreign Investment Directly?

  1. Marissa Smith says:

    Well, people definitely want a lot more than the cash handouts, and what is going on is more than simple “nationalism.” I recently watched a campaign piece by several members of the Democratic Party (ardchilsan nam) and they were talking in vague terms about development… “Americans have houses and cars, Mongolians should too.” I believe both major parties have a plan for “Mongolians in x year” (2020?) (I think it is covered in an earlier post actually on this blog?). There are posters on these programs up in Erdenet and Darkhan. However, Mongolians expect the mines to fuel such development and no one is saying or showing how, except perhaps Erdenet. (I’m serious. I have friends in their 20s who want to live in Erdenet and say it is Mongolia’s finest city.). People want Oyu Tolgoi to be a bigger and better Erdenet, city and transportation networks included, but the illusion that that can happen with Rio in charge is fading.

    I think there would not be much opposition among Mongolians to more control over foreign investments. On the other hand, it seems like Batbold (prime minister) for one is trying to play nice with the World Bank, judging from his Tsaagan Sar interview, and the new laws to “target the poorest families” with the handouts and rework the budgeting process (need to read up about that last one though). Seems like they are trying to give up on saying they will privatize Erdenet at least! In conclusion, I think we (American and Canadian Mongolia-watchers) need to be considering the place of Russia in Mongolian society and politics much more than we have been.

  2. Pingback: Guest Post: Mongolian “Resource Nationalism” | Mongolia Today

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