Download Mongolia Business Forecast Report Q2 2011 Brochure

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Mongolia Business Forecast Report Q2 2011
Description:
Ramping Up For The Boom Years
The publisher retains their bullish outlook on Mongolia’s long-term prospects, with rising investment and
surging exports set to underpin double digit growth over the next five years. The signing of the landmark
Oyu Tolgoi Investment Agreement in 2009 will underpin investor confidence in the government’s probusiness credentials, which will support development of the mining sector. Mongolia’s favourable location
next to China should ensure plentiful demand for its raw materials. The key risk remains inflation, with grain
shortages in Russia pushing food prices higher. In addition, we remain wary of poor asset quality in the
banking sector, but highlight underlying signs of stability and a reasonably strong pick-up in loan growth.
The report highlights a highly favourable macroeconomic environment in Mongolia and hold to our forecast
for 8.1% real GDP growth this year, which we expect to be driven by fixed investment in the mining and
transport sectors. Indeed, the recent release of preliminary data for full-year 2010 growth by the Mongolian
National Statistics Office indicate that mining and quarrying surpassed agriculture last year to become the
biggest sector of the economy. While this was no doubt helped by the dire performance of agriculture
following a terrible 2009/10 winter, we nevertheless contend that it is indicative of a broader trend, with
mining activity set to be the main driver of economic expansion in the coming years.
Robust deposit growth and improving asset quality will continue to underpin Mongolian banks’ ability and
willingness to lend through 2011. Nevertheless, we note that a large amount of banks’ capital continues to
be invested in central bank bills (which yield roughly the same as inflation), implying that banks remain
concerned about over-exposure to the real economy. A new bank law being debated by the Mongolian
parliament – providing, among other things, a stand-by recapitalisation facility – should help improve
lenders’ confidence to extend credit over the medium term.
The report holds the view that the development of Mongolia’s mining sector will result in an export boom
over the coming years, driven in particular by copper and coal, and that this will see the current account flip
into surplus in 2013. Moreover, we remain positive on the outlook for the financial account, with strong
foreign direct investment and portfolio inflows expected as investors seek to take advantage of the country’s
huge mineral deposits, attractive business environment, stable political system and enormous growth
potential. The key risk to our outlook remains over-reliance on Chinese demand, which leaves Mongolia
highly vulnerable to a slowdown in its larger neighbour.
Contents:
Executive Summary
Ramping Up For The Boom Years
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Ratings
Long-Term Political Outlook
Transforming Minerals Into Wealth
The Mongolian government will face major domestic challenges over the coming decade as the country’s
mining boom takes off and it seeks to strike a balance between distributing the revenues in a way that is
acceptable to the population while avoiding stoking inflation
Table: Political Overview
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Ratings
Economic Activity
Bumper Year Ahead, But Risks To Watch
We remain bullish on Mongolia’s medium-term growth prospects and highlight a generally supportive
political culture and business environment that make Mongolia a solid bet for investors
Table: ECONOMIC ACTIVITY
Balance Of Payments
Coal And Copper To Drive Export Boom
We hold to our core view that the development of Mongolia’s mining sector will result in an export boom
over the coming years, driven in particular by copper and coal, and this will see the current account flip into
surplus in 2013
Table: FISCAL POLICY
Table: CURRENT ACCOUNT
Exchange Rate Policy
MNT : Further Gains In 2011
Having retreated from its post-financial crisis highs posted in December 2010 to trade at MNT 1,250/US $ at
one point on February 14, the Mongolian togrog looks primed for further upside
Table: EXCHANGE RATE
Banking Sector
Recovery Momentum To Continue
Robust deposit growth and improving asset quality will continue to underpin Mongolian banks’ ability and
willingness to lend through 2011
Regional Outlook
Policy Implications Of Rising Inflation
Rising inflationary pressures are creating policy dilemmas for emerging European central banks
Chapter 3: 10-Year Forecast
The Mongolian Economy To 2020
Investments And Exports To Drive Growth
Mongolia’s bounce back from the global financial crisis, in line with rising prices for key commodities, has
been highly impressive and we expect the bumper rates of growth to continue through the long term
Table: Long-Term Macroeconomic Forecasts
Chapter 4: Business Environment
SWOT Analysis
BMI Business Environment Risk Ratings
Business Environment Outlook
Institutions
Table: BMI Business And Operation Risk Ratings
Table: BMI Legal Framework Rating
Table: Labour Force Quality
Infrastructure
Market Orientation
Table: Emerging Europe – Annual FDI Inflows
Table: Trade And Investment Ratings
Operational Risk
Table: TOP EXPORT DESTINATIONS
Chapter 5: BMI Global Assumptions
Global Outlook
Growth Solidifies, But Inflation Poses A Threat
Table: Global Assumptions
TABLE: GLOBAL & REGIONAL REAL GDP GROWTH % CHG Y-O-Y
TABLE: CONSENSUS FORECASTS
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