INVEST MONGOLIA. OPEN FOR BUSINESS Mr. Irmuun Demberel InvestMongolia Agency

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1 INVEST MONGOLIA OPEN FOR BUSINESS Mr. Irmuun Demberel InvestMongolia Agency 1

2 Open for Business Government Open and stable democracy Open investment environment Open access to giant economies Open access to natural resources Open for investment in megaprojects Open for Diversifiction

3 PART I. MONGOLIA S ECONOMY OVERVIEW 3

MONGOLIA OVERVIEW Government Situated between two massive economies, China to the south and Russia to the north, Mongolia promises abundant opportunity for growth.

4 MONGOLIA OVERVIEW Government Situated between two massive economies, China to the south and Russia to the north, Mongolia promises abundant opportunity for growth. Close Proximity to the Largest Global Resource Markets Mongolia s Key Advantages GDP 2013 in USD billions Population 2013in millions RUSSIA US$ 2, LEADING LAND / CAPITA Territory: 1.6 million sq km Population: 2.9 million (2013) Relatively YOUNG POPULATION with a HIGH LITERACY rate among emerging economies MONGOLIA US$ 11,4 3 CHINA US$ 8,358 1,351 One of the fastest growing economies globally Large mineral resource base that can be leveraged for industrialization Attractive environment for FDI and trade Proven fiscal track record augmented by forward looking initiatives Strengthening financial sector S.KOREA US $1, JAPAN US$ 5, ABUNDANCE OF UNEXPLOITED NATURAL RESOURCES Located close to some of the LARGEST global commodity MARKETS 3 FLOURISHING DEMOCRACY IN THE REGION Tested with 7 CONSECUTIVE SUCCESSFUL democratic ELECTIONS GDP/Capita US$ 3, % 2013 GDP growth $11.4bln 2013 Nominal GDP 11.5% 2014 est. GDP growth Economy could grow at double-digit rates for at least the next decade, raising per capita income fourfold within a decade - Parmeshwar Ramlogan, Former resident representative for Mongolia IMF, Jul 2011 Source: World Bank,

5 Mongolia China Indonesia Malaysia Philippines Vietnam Russia Mongolia China Indonesia Malaysia Philippines Vietnam Russia Government ONE OF THE FASTEST GROWING ECONOMIES GLOBALLY Mongolia continues to perform well compared to its emerging market peers, demonstrating robust growth momentum while maintaining moderate levels of inflation Real and Nominal GDP (US$ mm) GDP Growth Comparison Emerging Sovereigns Inflation Comparison Emerging Sovereigns 32.3% 0.5% 27.7% 31.8% 22.3% 18.8% YoY Real GDP Growth at 2013 YoY Inflation in July % 1.3% 6.4% 17.5% 12.3% 11.3% 7,940 10,010 14, % 7.6% 7.6% 8.3% 8.6% 7.3% 6.5% 3,12 7 5,172 3,12 7 2,712 4,567 3,311 6,693 3,503 3,943 5,032 5,248 1, % 4.2% 4.9% 1.4% 2.7% 2.0% 2.5% H E 1 YoY growth of Real GDP YoY growth of Nominal GDP Source: National Statistical Office, National Bureau of Statistics of China, Badan Pusat Statistik of Indonesia, Department of Statistics of Malaysia, National Statistics Office of Philippines, General Statistics Office of Vietnam, Federal State Statistics Service of Russia, Moody s Country Reports, (1) The Ministry of Economic Development, Mongolia Note: Exchange rate (MNT/USD) uses corresponding year end rate, 1, (2008), 1, (2009), 1, (2010), 1, (2011), 1, (2012), 1, (1H2013), 1450 (Expectation of

6 7/1/10 4/1/10 1/1/10 10/1/10 7/1/11 4/1/11 1/1/11 10/1/11 7/1/12 4/1/12 1/1/12 10/1/12 7/1/13 4/1/13 1/1/13 10/1/13 7/1/14 4/1/14 1/1/14 10/1/14 7/1/15 4/1/15 1/1/15 10/1/15 7/1/16 4/1/16 1/1/16 10/1/16 1/1/17 Government DOUBLE DIGIT ECONOMIC GROWTH Mongolia has been growing at double-digit rates in the last few years, making it one of the fastest growing economies in the world. Mongolia s real GDP growth remain double digit for 2013 % Average 12.2% Average 7.5% CPI stays at a manageable level near target inflation rate with high GDP growth % CPI Inflation Target = 9.9% Target = 8.0% Target = 7.0% Poverty rate decreased at a fast and steady pace since 2010 Diversified earnings driver and revenue base % Financial and Insurance 4.1% Manufacturing 5.9% Others 21.3% Real estate activities 6.8% Transportation and storage 6.1% Wholesale and retail trade; repair of motor vehicles and motorcycles 10.5% Mining and quarrying 18.0% Net taxes on products 13.2% Agriculture, forestry and fishing 14.1% 0 National Urban Source: National Statistical Office, Bank, World Bank, 2013 Nominal GDP 2012 (US$ bln): CAGR (1) ( ) 19.33% 6

7 LARGE MINERAL RESOURCE BASE THAT CAN BE LEVERAGED FOR INDUSTRIALIZATION Mongolia has been growing at double-digit rates in the last few years, making it one of the fastest growing economies in the world. A High-Growth Mineral Sector driving the Exports (US$ mm) 63.8% 1, % 2009 Total Export 81.0% 2, % 89.2% 91.0% 4,68 6 4,818 4, % 54.9% Mineral Export % of Total Exports 42.6% 2, % H2013 Mineral Export % of Nominal GDP Total coal exports are estimated to exceed 30 million tons at the end of 2015 once railway infrastructure is in place and is expected to further increase to 50 million tons by The current /1H2014 /export increased by 31,3%, 5,610 million USD. Operations at the Oyu Tolgoi deposit have commenced in 2013 and exports of its products began in July of These exports are expected to play a crucial role in total exports. Minerals Main Composition of Total Exports (1H2013) 7% 4% 10% 16% 17% 27% 20% Mongolia s World Class Mineral Reserves Main Mineral Resources Coal Copper Iron ores & Scrap Crude oil Zinc Gold Other Approved Reserves (2012) Copper (thousand tons) 83,807 Coal (mln tons) 18,473 Gold (tons) 2,402 Zinc (thousand tons) 1,740 Iron ore (mln tons) 1,047 Uranium (thousand tons) 47.9 Rare Earth (thousand tons) 3,768 Conventional crude oil (mln barrel) 2,438 Source: National Statistical Office, Erdenes MGL (1) Using annualized total exports, which equals the total exports as at June 30, 2012 multiplied by two 7

NATURAL RESOURCES & MINERALS Mongolia has substantial natural resources and minerals, which promise an unprecedented growth potential Strategic Deposits (including Oyu Tolgoi and Tavan Tolgoi, world

8 NATURAL RESOURCES & MINERALS Mongolia has substantial natural resources and minerals, which promise an unprecedented growth potential Strategic Deposits (including Oyu Tolgoi and Tavan Tolgoi, world s largest untapped deposits of its kind) Asgat Burenkhaan Erdenet Boroo Tumurtoi Gurvanbulag Mardai Silver 6.4 mm tons Phosphorite 300 mm tons Copper/molybdenum 1.2 bln tons Gold mm tons Iron ore mm tons Uranium mm tons Uranium mm tons Baganuur Dornot Coal mm tons Uranium mm tons Shivee Ovoo Tumurtein Ovoo Coal mm tons Ulaanbaatar Zinc 7.7 mm tons Tavan Tolgoi Tsagaan Suvarga Coal 7.4 bln tons Copper/ Molybdenum 10.6 mm tons Nariin Sukhait Coal mm tons Mongolia s world class mineral reserves Estimated reserves 2012 Oyu Tolgoi Copper 37mm tons Gold 1,431 tons Gold 2.4 tons Copper 83 mm tons Coal 23 bln tons Iron Ore 1088 mm tons Lead 1.7 mm tons Source: Ministry of Mining,

STRONG AGRICULTURAL SECTOR Mongolia s agricultural sector

km is being utilized for agriculture 50 mm heads of

9 STRONG AGRICULTURAL SECTOR Mongolia s agricultural sector is a major source of revenue base, contributing to the diversified economic drivers. 73% of the total territory of 1.5 mm sq. km is being utilized for agriculture 50 mm heads of live-stock 15.1% of total GDP, ranking after Industrial/Mining sector Source: National Statistics Office,

POTENTIAL FOR RENEWABLE ENERGY SOURCES Renewable energy sources such as wind and solar power plants have been attractive to many

Wind power classification of Good-to-Excellent wind power resources are equivalent to 1,113,300 MW of wind electric potential.

Annual average amount of solar energy is 1,400 kwh/m 2 with solar intensity of 4.3-4.7 kwh/m 2 per day.

10 POTENTIAL FOR RENEWABLE ENERGY SOURCES Renewable energy sources such as wind and solar power plants have been attractive to many investors. Wind Power Mongolia has potential to become one of the major wind power producers. Wind power classification of Good-to-Excellent wind power resources are equivalent to 1,113,300 MW of wind electric potential. Solar Energy About sunny days per year with an average sunlight duration of 2,250-3,300 hours are available in most regions. Annual average amount of solar energy is 1,400 kwh/m 2 with solar intensity of kwh/m 2 per day. Hydro Power There are 3800 small and big streams and rivers in our country, which could support up to MW of power and deliver 56.2 billion kwh of electric energy annually. Source: Ministry of Energy,

RAILWAY AND HIGHWAY INFRASTRUCTURE DEVELOPMENT Mongolia is located next door to the largest commodity consumers and is developing infrastructure to directly reach seaports in Russia and China

11 RAILWAY AND HIGHWAY INFRASTRUCTURE DEVELOPMENT Mongolia is located next door to the largest commodity consumers and is developing infrastructure to directly reach seaports in Russia and China Existing Railways Existing Railways in Russia and China Phase I and II Phase III Potential seaports and seaways The Parliament of Mongolia outlined 5,600 km of new railway infrastructure to be built in 3 Phases Phase 1 and 2 already in engineering, financing, and construction stage The railway network will create the most efficient transportation and will connect Mongolia s vast natural resources with the largest global markets including China, India, Japan, and S.Korea. The network will also encourage value added processing and industrial development In addition to the above mentioned railway project, the Government is also undertaking construction of 990 km highway to promote cross-border trade. Source: Ministry of Road and Transportation,

MEGA PROJECTS UNDERWAY Industrial mega projects to utilize abundant coal resources in order to create value add and domestic sources of strategic

1 Coal to Gas Plant 2 Coal to Liquid Plant 3 Coal Washing and Handling Plant To increase energy efficiency and cut reliance on oil and gas imports To

The Project aims to create domestic source of petroleum products thus enhancing energy independence and security of supplies through the introduction

12 MEGA PROJECTS UNDERWAY Industrial mega projects to utilize abundant coal resources in order to create value add and domestic sources of strategic products. 1 Coal to Gas Plant 2 Coal to Liquid Plant 3 Coal Washing and Handling Plant To increase energy efficiency and cut reliance on oil and gas imports To provide cleaner fuel sources vital for solving pollution in urban centers. The Project aims to create domestic source of petroleum products thus enhancing energy independence and security of supplies through the introduction of commercially proven, cutting edge technology in Mongolia. CHPP complex to be constructed as 2 x 10Mtpa modules, and commencement of construction in First module in June 2015, and second 5 mtpa in November CHPP ramping up to processing 20Mt of ROM by Source: Ministry of Energy, Ministry of Industry and Agriculture, Erdenes Tavantolgoi LLC,

13 PART II. REFORM 13

14 LEGAL REFORMS ON THE INVESTMENT ENVIRONMENT The New Investment Law ended the application of different rules and tax codes for domestic and foreign investors. Recently approved laws Investment Law (October 2013) Investment Fund Law (October 2013) Law on Securities (May 2013) Annulled laws Foreign Investment Law (1993) Foreign Investment Regulations in Entities Operating in Strategic Sectors (SEFIL) (2013). Tax rate 10% 5% Tax-free economic zones VAT Corporate income Customs duty Royalty VAT Corporate income Customs duty Royalty 10% 10% 5% 5% Source: Government, years 22 years 14

15 THE REVISED INVESTMENT LAW Effective Nov 1, 2013 Key features Applies to both foreign and domestic direct investments. Companies with foreign investment need only register with the Legal Entities Registration Office ("LERO"). No approval requirements are imposed on foreign private investment. Registration simplified: 3 steps instead of 6 Provides the definition of a foreign state-owned legal entity ("FSOE") as "a legal entity in which a foreign state directly or indirectly holds more than 50 per cent of the entity's issued shares". Removes the classification of strategic economic sectors for foreign private investment, but maintains the approval requirements for certain equity investments made by FSOEs in those sectors that were regarded as strategically important under the SFI Law. Investment Incentives NON-TAX INCENTIVES in relation to land rights, customs clearance, foreign labour quotes, immigration matters TAX INCENTIVES exemption from the payment of certain taxes WHICH ONES?, preferential tax treatment, accelerated depreciation and amortisation that is deductible from taxable income, carrying forward of losses TAX STABILIZATION (i) Stabilisation Certificates (ii) Investment Agreements (iii)other things (iv)visa facilitation (v) Training and skill incentives Appoints the Ministry of Economic Development ("MED") as the approval authority for certain investments by FSOEs. 15

16 FDI - Regaining FDI first half / 2014 (US$ in million) FDI in the first two months of 2014, compared to previous years, (2013 Jan-Feb) decreased by 31.7%, however in comparison to last two months of 2013, FDI increased by 3.1% This seen as investors confidence is gradually boosting. ЭДИЙН ЗАСГИЙН ХӨГЖЛИЙН ЯАМ 16

17 FDI - Regaining FDI first half / 2014 (US$ in million) 2014 first three months 1 FDI in US$ Jan US$183,4 Feb US$204,5 Mar US$250 Total: US$637,9 2 New FDI companies 82 3 Estimated number of projects receive Tax Stabilization Certificate 2 companies pre-approved by the investment assessment council to bear TSC in first half of 2014 (as such service recently launched), and expects more application 17

18 Summary of Feedbacks on Investment Law effectiveness from the Investors - Pros: 1. Major feedback from Investors on the law is very positive in terms of its qualification towards international standard ; 2. IMA s performance begun to hike to its target group through its various consultancy and wide spreading to the interested potential investors; 3. Quality of investment (the core idea) has positive prospects through the registered investors number in the 1h Quarter of Cons: 1. Less SME/SMI because of $ threshold 2. Inconsistency of Laws and Regulations to the Law on Investment 3. Specificifity matters the most-previous law was more detail oriented and clear in comparison to the current law on investment. 4. Law enforcement procedures causes negative impact on Investment attraction

19 Therefore, InvestMongolia Agency The primary role of InvestMongolia Agency is to increase the amount of new deals in Mongolia by FDI To measure the effectiveness of the Agency, it needs to track the value of closed deals where it has been involved.

20 But-Attracting FDI and maintaining is not only responsibility of IMA IMA is responsible for two of the four ways in which to improve FDI 1. Create an Investment Strategy e.g attraction, targeting, brand building 2. Provide companies with assistance e.g introductions, intermediation, advisory and facilitation (one-stop shop) The rest of the two is TEAM WORK that should involve every stakeholders (government bodies) 1. Improve the legal environment and effectiveness of law 2. Incentivize companies to do business in Mongolia through less intervention but more support

21 Strategy to reach outcomes We are making an effort ensure that prospects and leads become closed deals: In order to reach the outcome of seal the deal we are : - Targeting companies who are not actively looking at Mongolia opporutinities through various promotional pitches. - Targeting companies who actively investing time or resources into opporutinities in Mongolia by various services - Targeting companies executing a project in Mongolia by ensuring smooth seal-the - deal Result: - International Investment Forums (200 inner mgl, india, austria, spain, japan, usa in upcoming 3 months) - 81 companies registered since adoption of new law - FDI increased 3.1% which is far from our target of 15% - Reached and advised in total of 250 companies and individuals on investment law and environment since January.

Reforms to improve investment climate Fundamental 1. New Investment Law Pillar 1. Incentive to investors Issuance of Stabilization certificate Non taxing-taxing incentives Pillar 2.

SMART Governance (President) initiative Decisive Regulatory reform aimed to reduce and abolish inefficient, business unfriendly, excessive government regulations and red tapes (via implication of

22 Reforms to improve investment climate Fundamental 1. New Investment Law Pillar 1. Incentive to investors Issuance of Stabilization certificate Non taxing-taxing incentives Pillar 2. Equal treatment for both foreign and domestic investors Pillar 3. Investment Advocacy and Ombudsman services Fundamental 3. SMART Governance (President) initiative Decisive Regulatory reform aimed to reduce and abolish inefficient, business unfriendly, excessive government regulations and red tapes (via implication of guillotine approach) Limited and less involvement of Government and more focused on business enabling environment More economic freedom Fundamental 2. I. State Policy concept paper towards Mineral Sector adopted and passed by the Parliament. II. This policy paper ensure the long term stability by: Limited Government Intervention Transparent and responsible mining Good corporate governance, CSR and sustainable mining are encouraged. S M A R T Sustainability Multi-Participatory Accessible Reform Minded Transparent 22

Invest Mongolia Agency Available on www.investmongolia.

23 Invest Mongolia Agency Available on Investment Guide Book-2014 CONTENTS: 1. Coming to Mongolia 2. Company Registration 3. Company Taxation 4. Doing Business 5. Labor Employment 6. Foreign Investment 7. Trade 8. Addresses

24 PART IV. MONGOLIA IN SNAPSHOT (international indexes) 24

25 INCREASING EASE OF DOING BUSINESS IN MONGOLIA According to the 2014 Doing Business report by the World Bank, Mongolia is ranked 76 th progressing by four places compared to the previous year. DB 2014 Rank Protecting Investors 22 Starting a Business 25 Registering Property 27 Enforcing Contracts 30 Getting Credit 55 Paying Taxes 74 25

26 INCREASING EASE OF DOING BUSINESS IN MONGOLIA Mongolia is ranked at 54 out of 100 Best countries for Business (Forbes) Forbes 2014 Tax Burden 59 Personal Freedom 34 Corruption 75 Investor protection 21 Red tape 21 Techonology 64 Innovation 106 Monetary Freedom 70 Trade Freedom 66 26

What people are saying about opportunities in Mongolia Tuyen Nguyen IFC s Resident Representative in Mongolia For the second year in a row,

Marius Toime Partner, Berwin Leighton Paisner /international law firm/ Mongolia is democratic and relatively open compared to its neighbors and

Furthermore, tax position is favorable in certain sectors and Mongolia has signed a number of double tax treaties with other countries.

27 What people are saying about opportunities in Mongolia Tuyen Nguyen IFC s Resident Representative in Mongolia For the second year in a row, Mongolia has implemented three positive business reform, which demonstrates the country s commitment toward improving its business environment, particularly for smaller businesses. Mark Mobius Executive Chairman, Templeton Asset Management China's hunger for natural resources gives Mongolia's market "incredible" potential. Marius Toime Partner, Berwin Leighton Paisner /international law firm/ Mongolia is democratic and relatively open compared to its neighbors and foreign investors may be able to take advantage of the various bilateral investment treaties. Furthermore, tax position is favorable in certain sectors and Mongolia has signed a number of double tax treaties with other countries. Harris Kupperman CEO, Mongolia Growth Group I was just amazed at how much potential I saw. As an investor, you go to where the growth is. The economy is set to grow 12 percent this year. There is nothing else in the world that is as close to as exciting as what s happening in Mongolia right now. Win-Win With MONGOLIA 27

28 MONGOLIA-is the solid reason to invest THANK YOU 28

MONGOLIA is OPEN. for BUSINESS. Invest Mongolia Agency

MONGOLIA is OPEN. for BUSINESS. Invest Mongolia Agency MONGOLIA is OPEN for BUSINESS Invest Mongolia Agency WHY INVEST IN MONGOLIA 1. Large mineral resource base that can be leveraged for value added processing 2. Situated between two giant economies, China