Mongolia is dependant on the mining sector to fuel growth and late last year rewrote rules on foreign investment, but the decline in foreign direct investment (and with it GDP) may now be even harder to turn around.
In 2013, FDI had contracted by nearly 45%. In the first five months of 2014 only $400 million was pumped into the country, a 64% year-on-year decline. Overall economic growth has steadily slowed from 2011’s whopping 17.3%. In 2015 depending on Mongolian policy decisions, may range from a high of 12% to as low as 2%. The country is now seeking assistance from the IMF for the second time since 2009.
A drawn out dispute between Rio Tinto-controlled (LON:RIO) Turquoise Hill Resources (TSE:TRQ) and the Mongolian government about funding for the expansion of the massive Oyu Tolgoi copper and gold mine has taken much of the blame for stalling foreign investment.
But the Asian nation is not doing itself any favours by the way it treats foreigners visiting or working inside the country.
A recent report from the US embassy in Ulaanbaatar states investors and local legal experts have regularly reported that Mongolian public and private entities can use administratively imposed travel bans to pressure foreign investors to settle civil disputes.
US ambassador to Mongolia, Piper Anne Wind Campbell, said “exit bans on foreign business executives whose companies are involved in business litigation in Mongolia have had significant, detrimental impacts on foreign direct investment.”
SEE ALSO: Mongolia’s wealthy politicians
The rulers of Mongolia’s fewer than 3 million citizens have amassed moolah to the equivalent of 7.6% of the country’s GDP. If US politicians concentrated the wealth of America to the same degree they’d each be worth more than $2.2 billion.
Immigration officials may impose a travel ban for a variety of reasons, including an individual’s involvement in civil disputes, pending criminal investigations, or for immigration violations. Exit will not be allowed until either the dispute is resolved administratively or a court renders a decision.
The Mongolian government does not impose similar travel bans for Mongolian citizens.
On Tuesday three ex-employees of SouthGobi Resources, a coal producer owned Turquoise Hill, were found guilty of tax evasion by a Mongolian court. Under Mongolian law tax and other disputes are pursued in courts under the criminal code.
US citizen Justin Kapla and two Philippine nationals, Hilarion Cajucom Jr and Cristobal David, each received jail sentences of between five and six years, while the company was fined 35 billion tugrik ($18 million) for tax evasion. Money laundering charges of some 200 billion tugrik were dropped. SouthGobi said if the tax verdict stands it may have to file for bankruptcy.
Turquoise Hill has denied the charges against it and its employees, who have been the subject of a travel ban since 2012, but only formally charged in May last year. SouthGobi president and CEO Enkh-Amagalan said there was a “complete lack of evidence to support such a harsh verdict.” They will beging serving their terms immediately according to a court spokesperson.
“A criminal conviction would make huge waves internationally,” independent researcher Dale Choi who is based in Ulaanbaatar told Bloomberg ahead of the verdict:
“It would create very negative publicity. Foreign investors and executives would be scared of signing documents in Mongolia.”
Click here to download the US State Dept statement on Mongolia’s 2014 investment climate.
Image of traditional Mongolian wrestlers by Kyle Thomas