Mongolia’s frontier market and vast mineral reserves represent potentially lucrative opportunities for investors but vulnerability to external economic and financial shocks, ineffective dispute resolution, and lack of input from stakeholders during rulemaking warrant caution. Mongolia imposes few market-access barriers, and investors face few investment restrictions, enjoying mostly unfettered market access. Such franchises as fast food and convenience stores, outperforming expectations, suggest that investors can bring successful international business models to Mongolia. The cashmere-apparel and agricultural sectors also show strong promise. However, investing into such politically sensitive sectors as mining carry higher risk.

Mongolia attracts investors’ attention but has trouble converting interest into actual investments. Unless and until Mongolia embraces a stable business environment that both transparently creates and predictably implements laws and regulations, many investors will find its market too risky and opt for more competitive countries. An essential step to mitigating these risks is for Mongolia to implement the U.S.-Mongolia Agreement on Transparency in Matters Related to International Trade and Investment (known as the Transparency Agreement), which requires a public-comment period before new regulations become final. Mongolia has implemented some of this agreement but is five years behind full implementation of public-notice commitments.

2021 also saw resolution of some of the disputes hampering progress of the Oyu Tolgoi copper and gold mine, expected to provide 25 percent of Mongolia’s GDP as soon as 2024. Agreements over cost- and debt-sharing of a portion of the mine’s development, and commitments to more transparency by Oyu Tolgoi’s partners over management and development decisions, signals that Mongolia can and will work out disputes within the terms of its contractual obligations.

Government and parliament continue to address threats to judicial independence by implementing 2019 constitutional amendments and 2020 statutory judicial reforms that have improved transparency and reduced political influence in the appointment and removal of judges. Investors, however, continue to cite long delays in reaching court judgments, followed by similarly long delays in enforcing decisions, as well as reports that administrative inspection bodies, such as the tax authority, will fail to act on politically sensitive decisions or cases involving politically exposed Mongolians. Businesses note substantial and unpredictable regulatory burdens at all levels; and cite an excessively slow tax dispute resolution process as an indirect expropriation risk. In June 2022, parliament streamlined procedures for, and reduced the required number of, permits and licenses. Government effort to move delivery of most services onto digital platforms may also increase the efficiency of its business registration processes.

COVID-19 and Russia’s invasion of Ukraine are stressing Mongolia’s economy. In late 2021, Mongolia’s parliament passed its New Recovery Policy, a 10-year development plan to increase national productivity by improving transport logistics, energy production, industrialization, urban and rural infrastructure, and green development. This program depends on restoring market access for mining exports, the primary revenue source. However, as of early 2022, China’s zero-COVID policies continue to create bottlenecks along the Mongolia-China border. Meanwhile, Russia’s invasion of Ukraine, prompting unprecedented international sanctions on Russia, has created uncertainty about access to imports of petroleum products, electricity, and such key commodities as wheat and fertilizer.

See full statement on the link https://mn.usembassy.gov/2022-investment-climate.../