17.04.2013 mongolia’s potentially sustainable competitive advantage can it be realised and what...
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Mr O. Orkhon First Deputy CEO
August, 2011
Hong Kong
Mongolian Financial Services Industry Mongolian Investment Summit
MONGOLIA’S potentially sustainable competitive advantage: Can it be realised? What does it mean for you?
Randolph S. Koppa
President, Trade and Development Bank of Mongolia
April 17, 2013
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OUTLINE
• What is the advantage?
• Key factors
• How is it going so far?
• Current challenges
• Growth regeneration
• Opportunities
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THE POTENTIAL ADVANTAGE
Mongolia is located next to the second largest economy in the world which will continue to grow at a high rate and which will require increasing amounts of key minerals Mongolia is blessed with. There are two key minerals, copper and coking coal, on which Mongolia can establish a preferred position in serving China and the rest of East Asia
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BASIS OF THE ADVANTAGE
• Abundance
• Quality
• Scale
• Yields
• Production costs
• Proximity
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LINKING TO THE MARKET
Size 1,040 km
Investment US$ 5.0 bn
Time frame 2013-2017
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REQUIREMENTS
• Foreign investment
• Financing
• Infrastructure
The above three require:
• Political solidarity
• Legislative stability
• Fiscal and monetary discipline
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GROWING GDP, DRIVEN BY INVESTMENT IN MINING
5.17
4.57
6.69
7.94
10.02
0
2
4
6
8
10
12
2008 2009 2010 2011 2012
GDP Growth (US$ bn)
Source: National Statistical Office of Mongolia
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CONSIDERABLE FOREIGN INVESTMENT
0.8 1.0
1.6
5.3
3.8
0.0
1.0
2.0
3.0
4.0
5.0
6.0
2008 2009 2010 2011 2012
Foreign Direct Investment
Source: Bank of Mongolia, National Statistical Office of Mongolia; exchange rate of USD : MNT = 1392.1
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RISING EXPORTS Export Sector
Source: Bank of Mongolia, National Statistical Office of Mongolia; exchange rate of USD : MNT = 1392.1
2.5
1.9
2.9
4.8
4.4
0.0
1.0
2.0
3.0
4.0
5.0
6.0
2008 2009 2010 2011 2012
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LED BY FOUR COMMODITIES
Mln Mt/brl 2010 2011 2012
Coal 16.7 21.1 20.9
Copper 0.56 0.57 0.58
Iron Ore 3.6 5.8 6.4
Crude Oil 2.1 2.5 3.6
Source: National Statistical Office of Mongolia
Export Volume
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2013 PERFORMANCE HAS BEEN MIXED
• Coal exports down
• Q1 exports down 7.8% YoY
• FDI down dramatically
On the other hand
• Inflation down; now below 10% YoY
• Q1 imports down 17.3% YoY
• Budget being managed
• Funds raised for infrastructure
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SOME INSIGHT
• 2012 Parliament and 2013 President elections
• Rise in populist and nationalist rhetoric
• Softening coking coal prices and demand from China
• Reactive strategic enterprises foreign investment law
• Unclear draft of new minerals law
• Chinggis bond raised international observation of Mongolia’s affairs
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RESULT: UNCERTAINTY
• Continuing as new “reform” government administration moves to implement change
• Creating a lot of foreign investors “watching from the sidelines”
In recent months economic and business concerns have revolved around five issues:
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FIVE MAIN TOPICS
• Fiscal and monetary policy
• Chinggis Bond and infrastructure
• SEFIL and minerals law
• Oyu Tolgoi
• Tavan Tolgoi (Erdenes Tavan Tolgoi)
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REPRESENTING A PENTAGRAM
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CLASSIC SYMBOL OF WHOLENESS
• Fire
• Water
• Air
• Earth
• Psyche
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FIVE INTERDEPENDENT ISSUES
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A FORM COPIED IN NATURE
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WITH REGENERATIVE CAPABILITY
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TO RESTORE OPTIMUM CAPABILITY
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DAMAGED ARMS REGENERATING
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PROGRESS IS NOTED
• Inflation 9.8% in March; down 4% this year
• Fiscal surplus in February; lower spending
• New foreign investment law being readied
• Chinggis bond projects identified; railway tendering commenced
• OT production continuing towards exports this midyear; project financing being finalized
• TT (Erdenes Tavan Tolgoi) reengaging with Chalco
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GETTING BACK ON TRACK
Towards achieving the sustainable competitive advantage which can help Mongolia ride through the commodity price cycles by achieving a preferred supplier status.
In addition, progress can be made in the strategy of value added processing such as in the Sainshand Industrial Park
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TOTAL FINANCING INVESTMENT NEEDS AND OPPORTUNITIES 2010 TO 2015
• Mine Development $ 12 bn. to $ 20 bn.
• Infrastructure $ 8 bn. to $ 12 bn.
• Urban development $ 6 bn. to $ 8 bn.
• Agriculture $ 1 bn. to $ 2 bn.
• Industry and Commerce $ 15 bn. to $ 20 bn.
• Environment $ 1 bn. to $ 2 bn.
• Social $ 1 bn. to $ 2 bn.
• Financial Sector $ 1 bn. to $ 2 bn.
Totals: $ 45 bn. to $ 68 bn.
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POTENTIAL SOURCES OF FUNDS 2010-2015
• FDI $ 11 bn. to $ 14 bn.
• Domestic sources $ 12 bn. to $ 18 bn.
• Sovereign Borrowing $ 3 bn. to $ 6 bn.
• Foreign Capital Markets $ 11 bn. to $ 16 bn.
• IFI & Foreign bank Loans $ 7 bn. to $ 12 bn.
• Donors and NGOs $ 1 bn. to $ 2 bn.
Total $ 45 bn. to $ 68 bn.
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USD bln
* Chinggis bond USD 1.5 and DBM USD.6 bln
** Pending USD 4 bln OT project finance incl.
PROGRESS TO DATE
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PLANELOADS OF OPPORTUNITIES
Please engage to generate, or regenerate, your interest
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Thank you for your attention!
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