INVEST

OPEN FOR BUSINESS Mr. Irmuun Demberel InvestMongolia Agency

1 Government of Mongolia Open for Business

• Open and stable democracy

• Open investment environment

• Open access to giant economies

• Open access to natural resources

• Open for investment in megaprojects • Open for Diversifiction Government of Mongolia

PART I. MONGOLIA’S ECONOMY OVERVIEW

3 Government MONGOLIA OVERVIEW of Mongolia Situated between two massive economies, to the south and to the north, Mongolia promises abundant opportunity for growth.

Close Proximity to the Largest Global Resource Markets Mongolia’s Key Advantages

GDP 2013 in USD billions Relatively YOUNG Population 2013in millions 1 LEADING LAND / CAPITA POPULATION with a HIGH Territory: 1.6 million sq km LITERACY rate among RUSSIA Population: 2.9 million (2013) US$ 2,014 143 emerging economies

2 ABUNDANCE OF MONGOLIA UNEXPLOITED NATURAL US$ 11,4 3 S.KOREA RESOURCES US $1,129 50 Located close to some of the CHINA LARGEST global commodity US$ 8,358 1,351 MARKETS $11.4bln US$ 5,959 127 3 2013 GDP/Capita FLOURISHING DEMOCRACY Nominal US$ 3,972 IN THE REGION GDP Tested with 7 11.7% 11.5% . One of the fastest growing economies globally CONSECUTIVE . Large resource base that can be leveraged for SUCCESSFUL democratic 2013 2014 est. industrialization ELECTIONS GDP growth GDP growth . Attractive environment for FDI and trade “Economy could grow at double-digit rates for at least the next decade, raising per capita income fourfold within a decade” . Proven fiscal track record augmented by forward looking initiatives - Parmeshwar Ramlogan, Former resident representative for Mongolia IMF, . Strengthening financial sector Jul 2011

Source: , 2013 4 7 3 8. 32. ,

9 12 Y 2008 3 % o %

Y N S (US$ R

Government of our 5

7 3 ote gro ea , ,

17 12

c : 2

e w l

: mm

th Mongolia 2 an N 1. , 0. 71 E o 2009 at

3 o x f 5 %

d c ) 2 i % f V ona

han

i

R e N 4 e t , l na

g 56 a

om S e l ta m,

7 G ra

tistic D t F e in 6. 3 P 27. e , ( dera

4 31 M 2010 a al % 7 l % NT 1

O 6

l S l G , f while maintainingwhile moderate levelsinflation of Mongolia continues to perform wellcompared emerging toits marketpeers, demonstrating robust growth momentum 69 /USD) fi tat D c

3 e

P e o

f S 17. 3

u 31. t M , 503 a s 2011 ONE OF THEFASTEST GROWING ECONOMIES GLOBALLY Y 5 e tistics ongo 8 % o s %

Y c

orre

7 gro li ,

94 a S , e s

w 0 pond N r

vice 3 th at 12. , 22. 94 i

ona o 2012 3

ing 3 o 3 % f

% f

N 1 l

R

0 y B o u ea , ure 01 ssi m

r 0

i a a e n 5,03

, u n al M

1 d 1H20 o 18. 11.

, o

201 G 8 f St f r 2 o a 6

8 D 3 1 te d 5 8 % % 4 1 P a y ,

, 2

,22 ’s

tisti 3

4 1 1,267.

E 8 C 3 3

o c

s u ntr o 5 f Chif 1 y

(2008) R epor na 11 , B , E G . YoY , me t 4

ada D s 1,442.8 Mongolia % , P ( 1 n

) Real r

G P Th g u 7 4 r s i . e n a

o 6 (2009) t S M

g % G China w i ta

n

DP So t i st ti h , s r

tik

y 1,25 v

6.1 Gr C o ere

ompari o f Ecf o 7 f %

w

.1 Indonesia I ndon ono i 8

th g

(2010 ns mic e

at 2013 sia, 4

. s De ), 2

o

D % 1 Malaysia ve epart n ,3

l 9

op – 6.3

m 7 m 7 . ent e

6 (2011 n % t ,

Philippines o

M f

ongo ) S , t 1,392 a tistics 4 l i . a 9

. % 1 Vietnam 0 o

f (2

M 0 1 12) a l . a 4 y ,

s %

1, Russia i a 4

,

46.4 N at i 8 ona

(1 YoY I 8 n H l

. f St 2013) 3 l

a at %

tisti Mongolia

io ,

c 14 s n 5 Of 2

0 C .

fi 7 ( ompari E c % China e x i pe n Ju n o

f P f c tat 8 h l . ili y i 6 o pp

n 2013 % s

Indonesia i o o n

f e n 2013 s, 2

Genera – . 0

E %

Malaysia me

l S l ta r 2 g tistics . 5 i n % g

O So f 7 fice . v 3

ere Vietnam %

i g 5 6.5% ns

Russia

Government DOUBLE DIGIT of Mongolia Mongolia has been growing at double-digit rates in the last few years, making it one of the fastest growing economies in the world. Mongolia’s real GDP growth remain double digit for 2013 CPI stays at a manageable level near target inflation rate with high GDP growth

17.5 16.0 % 18 % 16 14.8 13.8 16 14 11.6 11.3 14 12.5 12 12.4 10.5 12 Average 12.2% 9.9 10.6 10.2 10 10 8.6 8.9 7.0 8 7.3 8 6.4 Average 7.5% 6 6 4.7 4 4 3.0 4.2 CPI Inflation Target = 8.0% 2 2 Target = 9.9% Target = 7.0% -1.3

0 0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

1/1/10 4/1/10 7/1/10 1/1/11 4/1/11 7/1/11 1/1/12 4/1/12 7/1/12 1/1/13 4/1/13 7/1/13 1/1/14 4/1/14 7/1/14 1/1/15 4/1/15 7/1/15 1/1/16 4/1/16 7/1/16 1/1/17

10/1/10 10/1/11 10/1/12 10/1/13 10/1/14 10/1/15 10/1/16

Poverty rate decreased at a fast and steady pace since 2010 Diversified earnings driver and revenue base

Others 39 and % 40 21.3% Financial and quarrying Insurance 18.0% 35 34 33 2011 4.1% Net taxes on 29 2012 Manufacturing 30 27 2013 5.9% products 13.2% 25 23 Real estate activities Agriculture, 20 6.8% forestry and Transportation Wholesale and fishing 15 and storage retail trade; 14.1% 6.1% repair of motor 10 vehicles and motorcycles 5 10.5%

0 Nominal GDP 2012 (US$ bln): 10.26 CAGR(1) (2007-2012) 19.33% National Urban

Source: National Statistical Office of Mongolia, , World Bank, 2013 6 Government LARGE MINERAL RESOURCE BASE of Mongolia THAT CAN BE LEVERAGED FOR INDUSTRIALIZATION Mongolia has been growing at double-digit rates in the last few years, making it one of the fastest growing economies in the world. A High-Growth Mineral Sector driving the Exports – Main Composition of Total Exports (1H2013) (US$ mm) 16% 27% 89.2% 91.0% 7% Iron ores & Scrap 4,68 4% 81.0% 6 Crude oil 4,385 10% 4,818 80.7% Zinc 63.8% 20% 17% 2,909 Other 54.9% 2,024 Mongolia’s World Class Mineral Reserves 1,885 42.6% 39.0% Approved 31.1% 26.9% Main Mineral Resources Reserves (2012) Copper (thousand tons) 83,807

Coal (mln tons) 18,473 2009 2010 2011 2012 1H2013 Gold (tons) 2,402 Total Export Mineral Export % of Total Exports Mineral Export % of Nominal GDP Zinc (thousand tons) 1,740 . Total coal exports are estimated to exceed 30 million tons at the end of 2015 once railway is in place and is expected to further Iron ore (mln tons) 1,047 increase to 50 million tons by 2017. Uranium (thousand tons) 47.9 . The current /1H2014 /export increased by 31,3%, 5,610 million USD. Rare Earth (thousand tons) 3,768 . Operations at the Oyu Tolgoi deposit have commenced in 2013 and exports of its products began in July of 2013. These exports are Conventional crude oil (mln barrel) 2,438 expected to play a crucial role in total exports of Mongolia.

Source: National Statistical Office of Mongolia, Erdenes MGL (1) Using annualized total exports, which equals the total exports as at June 30, 2012 multiplied by two 7 Government NATURAL RESOURCES & MINERALS of Mongolia Mongolia has substantial natural resources and minerals, which promise an unprecedented growth potential

Strategic Deposits (including Oyu Tolgoi and Tavan Tolgoi, world’s largest untapped deposits of its kind)

Asgat Burenkhaan Erdenet Boroo Tumurtoi Gurvanbulag Mardai Silver Phosphorite Copper/molybdenum Gold Iron ore Uranium Uranium 6.4 mm tons 300 mm tons 1.2 bln tons 0.025 mm tons 229.3 mm tons 0.016 mm tons 0.001 mm tons

Baganuur Dornot Coal Uranium 600.0 mm tons 0.029 mm tons

Shivee Ovoo Tumurtein Ovoo Coal Zinc 7.7 mm tons 646.2 mm tons

Tavan Tolgoi Tsagaan Suvarga Coal Copper/ 7.4 bln tons Molybdenum 10.6 mm tons

Nariin Sukhait Coal Oyu Tolgoi 125.5 mm tons Copper 37mm tons Gold 1,431 tons Mongolia’s world class mineral reserves Estimated reserves 2012

Gold Copper Coal Iron Ore Lead 2.4 tons 83 mm tons 23 bln tons 1088 mm tons 1.7 mm tons

Source: Ministry of Mining of Mongolia, 2012 8 Government STRONG AGRICULTURAL SECTOR of Mongolia Mongolia’s agricultural sector is a major source of revenue base, contributing to the diversified economic drivers.

73% of the total territory of 1.5 mm sq. km is being utilized for agriculture 50 mm heads of live-stock 15.1% of total GDP, ranking after Industrial/Mining sector

Source: National Statistics Office of Mongolia, 2013 9 Government POTENTIAL FOR RENEWABLE ENERGY SOURCES of Mongolia Renewable energy sources such as wind and solar power plants have been attractive to many investors.

Mongolia has potential to become one of the major wind power producers. Wind Wind power classification of Good-to-Excellent wind Power power resources are equivalent to 1,113,300 MW of wind electric potential.

About 270-300 sunny days per year with an average sunlight duration of 2,250-3,300 hours are available Solar in most regions of Mongolia. Annual average amount Energy of solar energy is 1,400 kWh/m2 with solar intensity of 4.3-4.7 kWh/m2 per day.

There are 3800 small and big streams and rivers in our country, which could support up to 6417.7 MW Hydro of power and deliver 56.2 billion kWh of Power electric energy annually.

Source: Ministry of Energy, 2013 10 Government RAILWAY AND HIGHWAY INFRASTRUCTURE DEVELOPMENT of Mongolia Mongolia is located next door to the largest commodity consumers and is developing infrastructure to directly reach seaports in Russia and China

. The Parliament of Mongolia outlined 5,600 km of new railway infrastructure to be built in 3 Phases

. Phase 1 and 2 already in engineering, financing, and stage

. The railway network will create the most efficient transportation and will connect Mongolia’s vast natural resources with the largest global markets Existing Railways including China, India, Existing Railways in Russia and Japan, and S.Korea. China Phase I and II . The network will also Phase III encourage value added Potential seaports and seaways processing and industrial development In addition to the above mentioned railway project, the Government of Mongolia is also undertaking construction of 990 km highway to promote cross-border trade.

Source: Ministry of Road and Transportation of Mongolia, 2013 11 Government MEGA PROJECTS UNDERWAY of Mongolia Industrial mega projects to utilize abundant coal resources in order to create value add and domestic sources of strategic products.

1 2 3 Coal–to–Gas Plant Coal–to–Liquid Plant Coal Washing and Handling Plant

• To increase energy efficiency and cut • The Project aims to create domestic • CHPP complex to be constructed as 2 x reliance on oil and gas imports source of products thus 10Mtpa modules, and commencement • To provide cleaner fuel sources vital for enhancing energy independence and of construction in 2014. solving pollution in urban centers. security of supplies through the • First module in June 2015, and second 5 introduction of commercially proven, mtpa in November 2014. cutting edge technology in Mongolia. • CHPP ramping up to processing 20Mt of ROM by 2017.

Source: Ministry of Energy of Mongolia, Ministry of Industry and Agriculture of Mongolia, Erdenes Tavantolgoi LLC, 2013

12 Government of Mongolia

PART II. REFORM

13 Government of Mongolia LEGAL REFORMS ON THE INVESTMENT ENVIRONMENT The New Investment Law ended the application of different rules and tax codes for domestic and foreign investors.

Recently approved laws Annulled laws • Investment Law (October 2013) • Foreign Investment Law (1993)

• Investment Fund Law (October 2013) • Foreign Investment Regulations in Entities Operating in Strategic Sectors (SEFIL) (2013) • Law on Securities (May 2013)

.

Tax rate

VAT VAT 10% 10% Corporate incomeCorporate income 10% Tax-free economic zones Customs duty 5% 5% Customs duty Royalty 5% Royalty

5 years 22 years Source: Government of Mongolia, 2013 14 Government THE REVISED INVESTMENT LAW of Mongolia Effective Nov 1, 2013

Key features

. Applies to both foreign and domestic direct investments. Investment Incentives

. Companies with foreign investment need only register with the Legal Entities Registration Office ("LERO"). NON-TAX INCENTIVES in relation to land rights, customs clearance, foreign labour quotes, immigration matters . No approval requirements are imposed on foreign private investment. TAX INCENTIVES exemption from the payment of certain taxes . Registration simplified: 3 steps instead of 6 WHICH ONES?, preferential tax treatment,

accelerated depreciation and amortisation that . Provides the definition of a foreign state-owned legal entity is deductible from taxable income, carrying ("FSOE") as "a legal entity in which a foreign state directly or forward of losses indirectly holds more than 50 per cent of the entity's issued shares". TAX STABILIZATION

(i) Stabilisation Certificates . Removes the classification of strategic economic sectors for (ii) Investment Agreements foreign private investment, but maintains the approval requirements for certain equity investments made by FSOEs in (iii)Other things those sectors that were regarded as strategically important (iv)Visa facilitation under the SFI Law. (v) Training and skill incentives

. Appoints the Ministry of Economic Development ("MED") as the approval authority for certain investments by FSOEs.

15 FDI - Regaining FDI first half / 2014 (US$ in million)

900 822 FDI in the first two 800 months of 2014,

700 compared to previous 623.7 years, (2013 Jan-Feb) 600 571.8 decreased by 31.7%,

500 however in 418.2 390.5 comparison to last two 400 months of 2013, FDI

300 increased by 3.1%.

200 125.9 • This seen as 100 investors confidence is gradually boosting. 0

ЭДИЙН ЗАСГИЙН 16 ХӨГЖЛИЙН ЯАМ FDI - Regaining FDI first half / 2014 (US$ in million) 2014 first three months

1 FDI in US$ Jan – US$183,4

Feb – US$204,5

Mar – US$250

Total: US$637,9 2 New FDI companies 82 3 Estimated number of projects 2 companies pre-approved by receive Tax Stabilization the investment assessment Certificate council to bear TSC in first half of 2014 (as such service recently launched) , and expects more application 17 Summary of Feedbacks on Investment Law effectiveness from the Investors

- Pros: 1. Major feedback from Investors on the law is very positive in terms of its qualification towards international standard ; 2. IMA’s performance begun to hike to its target group through its various consultancy and wide spreading to the interested potential investors; 3. Quality of investment (the core idea) has positive prospects through the registered investors number in the 1h Quarter of 2014.

- Cons: 1. Less SME/SMI because of 100.000$ threshold 2. Inconsistency of Laws and Regulations to the Law of Mongolia on Investment 3. Specificifity matters the most-Previous law was more detail oriented and clear in comparison to the current law on investment. 4. Law enforcement procedures causes negative impact on Investment attraction

Therefore, InvestMongolia Agency

• The primary role of InvestMongolia Agency is to increase the amount of new deals in Mongolia by FDI

• To measure the effectiveness of the Agency, it needs to track the value of closed deals where it has been involved. But-Attracting FDI and maintaining is not only responsibility of IMA IMA is responsible for two of the four ways in which to improve FDI 1. Create an Investment Strategy e.g attraction, targeting, brand building 2. Provide companies with assistance e.g introductions, intermediation, advisory and facilitation (one-stop shop)

The rest of the two is TEAM WORK that should involve every stakeholders (government bodies) 1. Improve the legal environment and effectiveness of law 2. Incentivize companies to do business in Mongolia through less intervention but more support Strategy to reach outcomes

• We are making an effort ensure that prospects and leads become closed deals: In order to reach the outcome of seal the deal we are : - Targeting companies who are not actively looking at Mongolia opporutinities through various promotional pitches. - Targeting companies who actively investing time or resources into opporutinities in Mongolia by various services - Targeting companies executing a project in Mongolia by ensuring smooth seal-the - deal Result: - International Investment Forums (200 inner mgl, india, austria, , japan, usa in upcoming 3 months) - 81 companies registered since adoption of new law - FDI increased 3.1% which is far from our target of 15% - Reached and advised in total of 250 companies and individuals on investment law and environment since January.

Government of Mongolia Reforms to improve investment climate

Fundamental 1. New Investment Law Fundamental 3. SMART Governance (President) initiative

Pillar 1. Incentive to investors . Decisive Regulatory reform aimed to reduce and abolish Issuance of Stabilization certificate inefficient, business unfriendly, excessive government Non taxing-taxing incentives regulations and red tapes (via implication of “guillotine” approach)

Pillar 2. Equal treatment for both foreign and domestic investors . Limited and less involvement of Government and more focused on business enabling environment Pillar 3. Investment Advocacy and Ombudsman services

. More economic freedom

Fundamental 2. S • Sustainability I. State Policy concept paper towards Mineral Sector adopted and passed by the Parliament. M • Multi-Participatory II. This policy paper ensure the long term stability by: A • Accessible . Limited Government Intervention . Transparent and responsible mining R • Reform Minded . Good corporate governance, CSR and sustainable mining are encouraged. T • Transparent

22 Invest Government Mongolia of Mongolia Agency

Available on www.investmongolia.com

Investment Guide Book-2014

CONTENTS:

1. Coming to Mongolia 2. Company Registration 3. Company Taxation 4. Doing Business 5. Labor Employment 6. Foreign Investment 7. Trade 8. Addresses

Government of Mongolia

PART IV. MONGOLIA IN SNAPSHOT (international indexes)

24 Government of Mongolia INCREASING EASE OF DOING BUSINESS IN MONGOLIA According to the 2014 Doing Business report by the World Bank, Mongolia is ranked 76th progressing by four places compared to the previous year.

DB 2014 Rank

Protecting Investors 22

Starting a Business 25

Registering Property 27

Enforcing Contracts 30

Getting Credit 55

Paying Taxes 74

25 Government of Mongolia INCREASING EASE OF DOING BUSINESS IN MONGOLIA Mongolia is ranked at 54 out of 100 Best countries for Business (Forbes)

Forbes 2014

Tax Burden 59

Personal Freedom 34

Corruption 75

Investor protection 21

Red tape 21

Techonology 64

Innovation 106

Monetary Freedom 70

Trade Freedom 66

26 Government of Mongolia What people are saying about opportunities in Mongolia

Tuyen Nguyen IFC’s Resident Representative in Mongolia For the second year in a row, Mongolia has implemented three positive business reform, which demonstrates the country’s commitment toward improving its business environment, particularly for smaller businesses.

Mark Mobius Executive Chairman, Templeton Asset Management China's hunger for natural resources gives Mongolia's market "incredible" potential.

Marius Toime Partner, Berwin Leighton Paisner /international law firm/ Mongolia is democratic and relatively open compared to its neighbors and foreign investors may be able to take advantage of the various bilateral investment treaties. Furthermore, tax position is favorable in certain sectors and Mongolia has signed a number of double tax treaties with other countries.

Harris Kupperman CEO, Mongolia Growth Group I was just amazed at how much potential I saw. As an investor, you go to where the growth is. The is set to grow 12 percent this year. There is nothing else in the world that is as close to as exciting as what’s happening in Mongolia right now.

27 Win-Win With MONGOLIA MONGOLIA-is the solid reason to invest

THANK YOU

28