The Real Reasons Mongolia Struggles to Attract Foreign Investment

At the Mongolia Economic Forum in July 2025, Prime Minister Gombojav Zandanshatar offered familiar promises: slashed bureaucracy, strengthened investor protections, a wave of state-sponsored mega-projects. He spoke of a leaner government and ending surprise regulations.

For a country facing dwindling coal revenues and rising fiscal pressures, the rhetoric sounds urgent—but it’s also tired.

Mongolia has made these promises before to attract foreign investment. A decade ago, it was a frontier market darling, lauded as a potential "Dubai of Central Asia." Capital poured in as GDP growth hit 17.3% in 2011. 

But the boom collapsed under the weight of fragile institutions—courts, regulators, tax authorities—unable to manage wealth and uphold contracts. The dysfunction remains. 

The U.S. State Department notes that Mongolia draws global investor interest, but struggles to convert it. The problem: unpredictable laws, inconsistent enforcement and weak institutions.

The 2024 Sovereign Wealth Fund Law lets the state retroactively seize up to 34-50% of assets deemed ‘strategic’ — an open invitation to reinterpret ownership rights on a whim. Even domestic players feel the heat. MCS, one of Mongolia’s largest conglomerates, owns a coal asset (Ukhaa Khudag) that may fall under this ambiguous category. Businesses worry not just about rules—but about who gets to interpret them.

Tax enforcement is another red flag for foreign investment in Mongolia. Companies face arbitrary audits. Officials often freeze accounts and reportedly demand full payment before a legal review, despite a statutory 10% cap on disputed sums. The Dispute Resolution Council, lacking independence, rules against taxpayers in 90% of cases. AmCham Mongolia calls the system biased. Businesses call it coercive.

Add to that the "strategic deposits" list—initially defined in 2007 but now potentially expanding to dozens more mines. With no clear criteria for inclusion or reclassification, the risk of retroactive grabs looms large. For long-term investors, it’s a dealbreaker. 

Even state-approved projects face hurdles. The Orano uranium development, backed by French and Mongolian officials in early 2025, continues to meet public resistance. The government has failed to manage the opposition or build trust, leaving companies exposed to grassroots backlash even after securing permits.

Why does this keep happening? Because Mongolia inherited a hollow state in the early 1990s. Democratic reform outpaced rule of law. Courts remain vulnerable to influence. Bureaucracies lack accountability. Political parties operate as patronage machines, distributing licenses and permits to allies. Vague laws become tools—not safeguards.

Global risks now magnify the problem. According to BCG, geopolitical volatility ranksamong investors’ top concerns. In resource-rich countries like Mongolia, legal predictability isn’t a luxury—it’s a prerequisite.

The consequences are visible. FDI inflows as a share of GDP fell from 14.2% in 2022 to 10.7% in 2023, with the IMF projecting just 9.5% this year. Most of that goes to existing assets like Oyu Tolgoi copper-gold mine. Greenfield investment is scarce. Capital, like trust, is fleeing.

Zandanshatar’s proposals—streamlining permits, digitising services—are necessary but insufficient. Promises are not policy. Laws need clarity. Oversight must be independent. And bureaucracies must be professionalised. Without deep institutional reform, investors will continue to look elsewhere.

The real resource crisis isn’t underground. It’s institutional.