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Transcript of 57996741
8/2/2019 57996741
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© 2011 Business Monitor International All rights reserved www emergingeuropemonitor com
MONGOLIA
RISK SUMMARY
DATA & FORECASTS
POLITICAL RISK
Uranium Exploration To
Begin
Prime Minister Batbold Sukhbaatar saysMongolia will aim to begin uranium explo-
ration before 2012, according to a report
in the Ulan Bator Post. Sukhbaatar said the
country needs to speed up operations so
that it can exploit the almost 1mn tonnes
of reasonably assured uranium reserves in
Mongolia soon. Feasibility studies have com-
menced at the enriched Mardai and Kharaat
deposits. We are encouraged by the prime
minister’s statement and continue to stress
that Mongolia’s investment climate remains
strong, despite concerns over recent mining
licence problems.
Our short-term political risk rating is 74.0.
ECONOMIC RISK
Recovery On CourseMongolian industrial production rose by
13.6% y-o-y over the course of 2010, down
from 17.8% y-o-y in the previous year. While
the rate of growth dropped, we neverthe-
less contend that the 2010 number marks a
healthy outturn and supports our view that
the economic recovery is firmly on course. In
particular, we highlight the healthy perform-
ance of mining last year, with this component
of industrial production rising by 10.1%. In
2011, we forecast the recovery to remain
on course, with the economy expected to
grow by 7.9%.
Our short-term economic risk rating is 51.9.
BUSINESS ENVIRONMENT
Minco Gold Forms CNNC JV Canada’s Minco Gold has entered a joint
venture agreement with a subsidiary of the
China National Nuclear Corporation and
has acquired a 51% equity interest on a gold
mine in Inner Mongolia. According to Trading
Markets, the mine has been producing gold
since 1996 and is currently operating at 600
tonnes per day at roughly 85% gold recov-
ery. We expect mining sector output to grow
to US$9.9bn by 2014, marking a fourfold
increase from 2010, with the majority of this
increase occurring in 2013 and 2014 as the
Oyu Tolgoi mine comes online.
BMI’s business environment rating is 47.0.
ECONOMIC OUTLOOK
Bumper Year Ahead, But
Risks PersistBMI View: We remain bullish on Mongolia’s medium-term growth prospects, andhighlight a generally supportive political culture and business environment which makeMongolia a solid bet for investors. That said, we continue to flag up a number of risks.
We reiterate our long-held view that Mongo-
lia will be one of the world’s fastest-growing
economies in the next 10 years, powered
by an investment-led mining boom. Strong
foreign direct investment will enable the
development of the country’s vast mineral
resources, leading to a surge in exports and
real GDP growth in the high single digits or
above through to 2020.Heading into 2011, we highlight a highly
favourable macroeconomic environment
and hold to our forecast for 7.9% real GDP
growth this year, which we expect to be
driven by xed investment in the mining
and transport sectors. Indeed, the recent
release of preliminary data for full-year
2010 growth by the Mongolian National
Statistics Office (MNSO) indicates that
mining & quarrying surpassed agriculture
last year to become the biggest sector of the
economy. While this was no doubt helpedby the dire performance of agriculture
following a terrible 2009/10 winter, we
nevertheless contend that it is indicative of
a broader trend, with mining activity set to
be the main driver of economic expansion
in the coming years.
The scal picture is also improving, in
line with our view, with the government
having actually posted a scal surplus in
2010 according to preliminary data from
the MNSO. Moreover, the outlook for the
banking sector is also relatively favourable,in line with our long-held view that the worst
of the crisis is over.
While we are upbeat on Mongolia’s
growth prospects and believe these will pro-
vide a multitude of attractive opportunities
for investors over the medium term, we note
an increasing dependence on international
commodity prices and Chinese demand. In
addition, ination will remain a problem
through 2011, with the initial spike in H110
driven by a domestic food shortage being
maintained through H210 by loose scalpolicy, stronger demand-side pressures and
higher international food and commodity
prices.
BMI View: The Mongolian togrog continues to perform well, strengthening to MNT1,245/
US$ at one point on January 31 from MNT1,259/US$ at end-2010. We have long been bullish
on the unit and continue to expect a robust performance. Indeed, with exports expected to
perform well on the back of strong Chinese demand, growth forecast to hit 7.9% in 2011 and
foreign investment likely to rise further, we see the togrog hitting MNT1,140/US$ by end-2011.
2009 2010e Latest Period 2011f 2012f
Population, mn [1] 2.7 2.7 - - 2.7 2.8Nominal GDP, US$bn [2] 4.2 4.6 - - 6.1 7.7Real GDP growth, % change y-o-y [2] -1.6 9.3 - - 7.9 9.0Industrial production index, % y-o-y, ave [3] 17.8 13.6 - - 10.1 11.4Budget balance, % of GDP [4] -5.7 0.0 - - 2.5 -0.8Consumer prices, % y-o-y, eop [5] 1.8 10.0 10.9 Sep 9.0 8.0Exchange rate MNT/US$, eop [6] 1,430.00 1,259.00 1,245.25 31-Jan 1,140.00 1,080.00Goods imports, US$bn [5] 3.1 2.1 3.3 Jan-Dec 2.7 3.5Goods exports, US$bn [5] 2.5 1.8 2.9 Jan-Dec 2.5 3.4Balance of trade in goods, US$bn [5] -0.6 -0.2 -0.4 Jan-Dec -0.1 -0.0Current account, % of GDP [4] -6.3 -3.9 - - -2.6 -0.1Foreign reserves ex gold, US$bn [7] 1.3 1.8 - - 2.1 2.4Total external debt stock, % of GDP [9] 44.9 43.5 - - 37.7 33.6
Notes: e/f = BMI estimates/forecasts. Sources: 1 World Bank/BMI calculation/BMI; 2 IMF/BOM/BMI; 3 MNSO; 4 BoM/BMI;
5 BoM; 6 BMI; 7 IMF; 8 EBRD; 9 EBRD/BMI.
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