- Weak commodity prices weigh on economy reliant on copper, coal
- Foreign investment fell to $232 million amid investor disputes
Mongolia’s gross domestic product slowed in 2015 to the weakest pace since 2009, as foreign investment dried up amid protracted disputes with investors, dragging down an economy already battered by weak commodities prices.
GDP by production approach expanded 2.3 percent from a year earlier, according to preliminary data posted Tuesday on the National Statistical Office’s website. The economy grew 7.8 percent in 2014, following three straight years of double-digit growth.
A steep drop in global commodity prices was the largest reason for the slowdown, Tuvshintugs Batdelger, the director of the Ulaanbaatar-based Economic Research Institute, said by phone.
Mongolia exported $3.68 billion worth of mineral products in 2015 compared with $4.79 billion a year earlier, according to the NSO, a 23 percent decline. Minerals made up 79 percent of the total exports.
Coal led the way down as export revenues declined to $555.9 million from $849 million. The value of Mongolia’s copper exports fell to $2.28 billion from $2.57 billion a year earlier, even as volume rose 7.2 percent.
Mongolia posted annual growth of as much as 17 percent four years earlier during construction of the initial phase of the Oyu Tolgoi copper mine, a $6.6 billion investment.
“FDI plays a big role in the decline of the growth. And FDI has declined because of commodity price declines,’ said Tuvshintugs.
Foreign investment fell to $232 million in 2015 compared with $381.9 million a year earlier, a 39 percent drop. While FDI reached $4.45 billion in 2012, it has been hindered by a slew of disputes with investors, including a high profile spat with Rio Tinto Group over development of the Oyu Tolgoi mine.
The Mongolian government and Rio finally resolved their differences and signed a $4.4 billion project financing package in December, paving the way for a restart of the underground mine construction later this year.
Mongolia’s 2016 budget includes a 4.1 percent GDP growth projection, according to Manduul Nyamandeleg, head of financial markets and insurance division at the ministry of finance.
The World Bank had forecast 2.3 percent growth for 2015, and is predicting a 0.8 percent expansion for 2016 and 3 percent growth in 2017.
“Mining production is projected to decline in 2016-17 with lower mineral concentration in ores produced by the OT mine and the weak global commodity market conditions,’’ the World Bank wrote its November economic update.
While the non-mining sector will probably remain weak, “a recovery in foreign investment in the mining sector is expected to support the industries supplying goods and services needed for large scale mining investment projects in the latter half of the year,’’ according to the Bank.
Political risk due to “policy inconsistency’’ and “political instability’’ is also stalling FDI as investors hold their bets, at least until after June Parliamentary elections, said Tuvshintugs.
“I don’t see a lot of good messages to convince foreign investors to come into the economy. One indication of this is that Mongolian bond prices are now more than 12 percent so that shows you that foreign investors are not buying, they are waiting,’’ he said.