Mongolia Economy

Monvest will open operations in the Mongolia capital city of Ulaan Bataar, which holds about 1.2 million people or 45% of the total population of 2.8 million. Demographics of the local population are an important component to the lottery industry, and Mongolia is a rising economic star in Asia.

An improving demographic, a growing resource-based economy and modernization programs provide a base for development. Mongolia was listed for the first time as an emerging market in February 2011 when Citigroup analysts determined Mongolia to be one of “Global Growth Generators”, these are countries with the most promising growth prospects for 2010-2050. Mongolia’s economy is centered on agriculture and mining. Production of coal, iron ore and crude oil is expected to rise 10-fold over the next 10 years and the 10 largest mineral resource deposits are estimated to be worth over $1.3 trillion.

As of third quarter 2011, Mongolia’s fundamental growth looked strong. The economy grew 17.3% year-on-year during first half 2011, according to the World Bank. The surge in growth marks a prelude to a further five years of average annual real GDP expansion of at least 13%, according to Mongolia broker Frontier Securities.

Mongolia now spend more on consumption as a result of higher incomes, contributing to an inflation rate of 11.4% (year-on-year) in July 2011. That inflation rate is pushed by higher government spending, food prices and by imports. Still, government spending remains in check with a fiscal surplus of 7% of GDP during this period, with foreign exchange reserves of some $2.6 billion, equal to over 40% of GDP.

The Mongolia capital market is evolving. The small stock market was the world’s best performer in 2010, and has risen again strongly in 2011. The local stock market is moving to electronic trading by December 2011 and international trading through the London Stock Exchange by first quarter 2012. These developments are expected to bring in new capital inflows to local industry. In a boost to the nation’s international standing, US vice-president Joe Biden visited to Ulan Bator in mid-2011 as part of a China trip.

The Mongolia currency appreciated some 9% versus the US dollar, even as money supply increased 67% and a net trade deficit was registered. The Mongolia tugrik was the second best performing currency against the US dollar in 2010. Mongolia is experiencing its last period as a net importer due to equipment and infrastructure needs for mine development ahead of a flow commodity exports expected in 2012.

The copper and coal mining industry drive the economy, but are susceptible to a global downturn. Mining comprises 22% of GDP and expanded 40% in 2010, despite political issues about how to exploit the natural riches held in the two vast mining complexes of Oyu Tolgoi (copper) and Tavan Tolgoi (coal). Tavan Tolgoi and Oyu Tolgoi, two of the biggest global mining projects, are coming online in 2012, with combined Net Asset Value (NAV) of over $30 billion versus Mongolia’s GDP of $6 billion. The prospects of additional new world class mining projects provide greater upside. Industry estimates indicate that mining-related foreign investment in coal, copper and gold could exceed $10 billion in the next five years.

The transportation and construction sectors grew at 39.9% and 38.4% respectively in first half 2011, retail and wholesale trade grew at 24.7%. However, the sustainability of Mongolia’s rapid growth will depend on global macroeconomic factors. In particular, China’s policy will be crucial. If China holds strong, the effects of a global downturn on Mongolia will be mitigated, according to World Bank. Some 85% of total exports go to China and more than 60% of mining exports are either coal or copper.