by Amar Adiya | Managing Editor of Mongolia Weekly and Director at BowerGroupAsia
As we are approaching the end of the year we look ahead to important trends in politics, economic and investment conditions in Mongolia.
2022 is going to be a crucial year for the country to recover from the COVID-19 pandemic as the government focuses on digitalization and some liberalization in select sectors.
2022 is also an off-election year consolidating policy directions before the election cycle begins in 2023.
What You Need To Know
The election of former Prime Minister Ukhnaagiin Khurelsukh to the presidency in June 2021 secured the ruling Mongolian People’s Party’s (MPP) political dominance in the coming years. Khurelsukh will serve one six-year term and will be a key player in laying grounds for the re-election of the MPP in 2024.
Businesses can expect a more stable business and investment environment as the ruling party controls the presidency, premiership and Parliament.
The reform of mining and investment laws has yet to progress mainly due to rising resource nationalism and populism. Anti-foreign — and anti-Chinese —sentiment prompted a reversal of investment law liberalization.
The MPP may look to expand state involvement in key sectors like coal and copper mining and fossil-fuel-powered infrastructure. However, increased budgetary hardships and rising social inequality may open up certain sectors as fintech, nascent renewable energy, untapped tourism and entertainment.
Although the 2021 growth is expected to be lower than expected at around 4 percent, its economy is projected to accelerate by 7.5 percent.
Following the Glasgow climate summit, President Khurelsukh rolled out a one-billion-tree planting campaign by 2030 to help combat desertification and environmental degradation in the country. This also addresses China’s request to deal with sandstorms coming from Mongolia every spring and could help to further boost bilateral cooperation between the two countries.
Ruling Party Dominates Divided and Weak Opposition
The far-left Mongolian People's Revolutionary Party (MPRP), which broke off from the MPP in 2010, rejoined the ruling party in early 2021. As the MPP continued to consolidate its power, in contrast, the leadership of the largest opposition party — the Democratic Party (DP) — broke up following the end of Khaltmaagiin Battulga’s presidential term. DP’s split has become a real possibility, making it a very weak opposition to the MPP government.
Pockets of anti-lockdown and anti-government protests online and on the streets of Ulaanbaatar are continuing. A spike in social unrest in 2022 is possible but unlikely to spread widely. Most tensions are fueled by political elites for their own personal agendas.
However, public dissatisfaction with heavy- handed COVID restrictions on small businesses and vendors should not be discounted if incomes and quality of life suddenly drop.
Cabinet Reshuffle Looms as Two New Cabinet Posts Added
Prime Minister Luvsannamsrain Oyun-Erdene is adding two cabinet portfolios overseeing digital transformation and long-term economic development. The new ministries would allow the prime minister to push the implementation of the Mongolia 2050 Vision and accelerate the country’s transition to conducting more business online.
The new additions may result in a cabinet reshuffle as different factions within the MPP demand more ministerial seats and the public calls for the dismissal of unpopular and underperforming ministers.
COVID Risks Remain Despite Effective Response
The government’s response to COVID has been effective and speedy, with two-thirds of the population having received two vaccine doses ahead of many other countries. Total deaths have been kept at a minimum at about 2,000. Travel restrictions were lifted in June and COVID restrictions have been eased as schools and offices reopened in September.
The Finance Ministry and central bank are gradually cutting down the two-year-old pandemic aid, which has been key to wooing voters during the 2020 legislative and 2021 presidential elections. State subsidies on utility payments and cheaper loans are expected to be pulled back in 2022. Child benefits will remain, and parents have been asked not to make immediate spending decisions.
Disruptions at the Chinese Border Delay Key Earnings
Coal truck convoy is waiting to cross the border to China
Mongolia targets at least 36 million tons of coal exports to China in 2022, capitalizing on the ongoing global energy crisis. However, due to on-and-off border closures at the checkpoints following COVID breakouts in China, Mongolia risks failing to achieve that target and taking advantage of the short-term commodity price hike.
By Q3 2021, Mongolia only exported 16 million tons of coal. This was mainly due to multiple disruptions along the border with China through which thousands of Mongolian truck drivers cross since the commodity rail to northern China has yet to be completed. Mongolia does not plan to cut coal mining, which is a key export earner.
Crypto on the Rise Amid Banking Liberalization
While replacing the tugrik with cryptocurrencies is very unlikely, the development of digital currencies in the form of decentralized cryptocurrencies and private sector digital currencies and tokens has gained pace. Domestically mined coins like ArdCoin and Inflation Hedging Coin (IHC) took retail investors by a storm in 2021 who were looking to reshape Mongolia’s financial landscape.
Lawmakers want to tightly control the use of digital assets, but the cryptocurrency ecosystem is poised for further growth as more Mongolians look for ways to access the global financial system.
Five of the biggest commercial banks making up almost 80 percent of the financial industry are going public in the second half of 2022.
By law, they must break up concentrations of individual and family ownership. Bankers with links to elite politicians are concerned about increased competition from international players.
Regulatory Reforms Hit Nationalist Roadblock
Review of the 2013 investment law hit a roadblock following a recent wave of anti-Chinese sentiment. This was stoked by suspicion that the liberalized investor immigration program could bring in an uncontrolled number of Chinese immigrants. The proposed changes in the law have been withdrawn after the public backlash.
Revisions in the mineral law to abide by Mongolia’s 2019 constitutional amendments would require majority state ownership in key mineral deposits. If passed, this would limit private interests in the resources sector.
Lawmakers continue to prioritize investment in non-mining sectors like beef exports, nascent solar and wind energy, tourism, entertainment and movie production for global audiences.
China’s recent pledge to stop building new coal power plants overseas has opened new opportunities to unlock Mongolia’s huge wind and solar energy potential. The country’s massive Gobi Desert, which is next door to China, could provide fertile ground for solar power generation and exports.
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