Mongolia’s meltdown reduces legal work, but there’s hope for rebound
Just over five years ago, Mongolia was the world’s fastest-growing economy, recording a staggering 17 percent in 2011, thanks to China’s booming demand for the landlocked country’s minerals. But the economy’s 1 percent growth in 2016 was its lowest in seven years, and this decline brought Mongolia to the brink of recession.
Mongolia sells about 90 percent of its exports – most of which are commodities – to China. So Mongolia was hit hard when the world’s second-largest economy started to slow down, and commodities collapsed to their lowest level since the financial crisis.
Mongolia received a mere $35 million of foreign direct investment for the first half of last year, compared with $4.62 billion for the whole of 2011, according to Reuters. Disputes with international companies like Rio Tinto over a $5 billion expansion of Mongolia’s mega-mine Oyu Tolgoi do little to lure back foreign investments in the crisis-hit country.
The change from boom to bust has affected the types of work law firms do in the country. “Naturally, foreign direct investment is down, new mining projects are fewer, and banking and real estate work are down slightly as well,” says Otgontuya Davaanyam, an attorney at Anderson & Anderson in Ulaanbaatar.
On the upside, disputes and intellectual property work have increased. Additionally, firms like Hogan Lovells have seen more financing work from international financial institutions, as well as some commercial banks. “In that context and given the nature of the market, the natural resources, energy, and infrastructure sector remains a priority focus of the practice,” says Chris Melville, the firm’s Mongolia managing partner.
Another important consequence of Mongolia’s economic downturn has been “the need for greater emphasis on Mongolian clients, including the government of Mongolia,” adds Melville.
Though China is still slowing down, there is reason to be hopeful for Mongolia’s economy, thanks to the International Monetary Fund (IMF).
In February, Mongolia agreed to a $5.5 billion economic stabilisation package from the IMF as well as other institutions and countries.
Under the bailout plan, Mongolia has pledged to implement fiscal reforms for greater budget discipline, maintain a flexible exchange rate, and build a stronger regulatory environment for banking and finance, according to Reuters.
In March, IMF’s country head to Mongolia, Neil Saker, said the emerging economy can look forward to 7 to 8 percent economic growth once it rebounds from its economic troubles, reported Reuters.
Ik Wei Chong, Asia managing director for Clyde & Co., believes the Mongolian economy may take several years to grow in the face of lower and slowly-recovering commodity prices. But he has hope for the new government, which has indicated that it is looking for sustainable growth, built on resources as well as agriculture and tourism – a sector in which Clyde has a significant interest. “We believe the medium-term economic trends show promise,” he adds.
Hogan Lovells’ Melville is also hopeful about the future. “At present, the market is undoubtedly going through a flat phase and we are not actively looking to expand. That said, I remain cautiously optimistic about the future prospects for the Mongolian economy. There are indications that following final approval of the IMF package and the presidential elections in June this year, investment and deal activity will increase as a result of a rebound in commodity prices and expected political and economic stability,” he says. “The potential is there – the question is whether it can be properly harnessed.”
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