Foreign Direct Investment in Mongolia An Interactive Case Study March 2007 This publication was produced by Nathan Associates Inc. for review by the United States Agency for International Development. Foreign Direct Investment in Mongolia An Interactive Case Study DISCLAIMER This document is made possible by the support of the American people through the United States Agency for International Development (USAID). Its contents are the sole responsibility of the author or authors and do not necessarily reflect the views of USAID or the United States government. Sponsored by USAID’s Bureau of Economic Growth, Agriculture and Trade (EGAT) under Contract No. GS-10F-0619N, Task Order No. EEM-M-00-06-00028-00 and implemented by Nathan Associates Inc., the Trade Capacity Building Bridge Task Order helps USAID to design, implement, and evaluate technical assistance that will stimulate economic growth and reduce poverty. USAID Missions and Bureaus may request more information about the TCB Bridge Task Order by contacting Tracy Quilter, Cognizant Technical Officer for the task order, at [email protected]. The primary author of this case study is Roger Manring of Nathan Associates. Contents Foreign Direct Investment in Mongolia: An Interactive Case Study 1 Objectives 1 Approach 1 Case Study Scenario 2 Terms of Reference for Working Groups 3 1. GOM Policymakers 3 2. North America-Mongolia Business Council (NAMBC) 4 3. USAID Technical Experts-Program Managers 4 Inventory of Resource Documents 5 Appendix I. Note on Background to Mongolia FDI Activity Appendix II: Additional Resource Documents ADB, Mongolia, Key Indicators of Developing Asian and Pacific Countries, 2006 IMF, Mongolia, Staff Report for the Article IV Consultation, December 18, 2006 ADB, Asian Development Outlook 2006, Mongolia Government of Mongolia, Economic Growth and Poverty Reduction Strategy, Executive Summary World Bank, Mongolia: Promoting investment and job creation, Executive Summary, 2006 ADB, Mongolia Private Sector Assessment 2004, Chapter 2, Enabling Environment for PSD ADB, Mongolia Private Sector Assessment 2004, Chapter 3, Sector Profiles World Trade Organization, Mongolia Trade Policy Review, 15-17 March 2005, Chapters 2-4 US Embassy, Mongolia Country Commercial Guide, 2005 Chapter 6, Investment Climate Statement World Bank, Doing Business 2007, Mongolia Millennium Challenge Corporation, Mongolia Sample Call Order Statement of Work, 2007 Foreign Direct Investment in Mongolia: An Interactive Case Study This Case Study focuses on foreign direct investment (FDI) in a developing country context. The Case Study is designed to fit into the framework of a multi-day (e.g., weeklong) Trade and Investment Training Course for USAID Economic Growth Officers. It assumes that the Training Course would include approximately three modules to address the role of FDI in the developing world, i.e., current characteristics, benefits and costs, possible future directions, and key issues in FDI promotion. It further assumes that the course would be made up of 20 or so participants, all with field experience in USAID program design and implementation, and that the Course would be led – for FDI segments – by a facilitator and/or presenter(s) familiar with FDI topics. OBJECTIVES Within the Training Course structure outlined above, Case Study - Mongolia FDI has three objectives. It intends to help participants become better able to: • Understand FDI as a possible driver in economic development. • Analyze the types of constraints that discourage FDI or dilute its benefits. • Define the kinds of practical actions that donor programs might support to stimulate FDI and maximize its impacts. • To make the experience more realistic, the Case Study pursues these objectives in the context of the real-world economy of Mongolia, a low-income country whose needs, attractions and disadvantages for FDI are striking, and thus likely to stimulate interest and useful discussion among participants. APPROACH In order to encourage participants to consider the technical issues of FDI from multiple perspectives, the Case Study adopts a role-play approach. Participants will first be asked to divide themselves up into three Working Groups. Each Working Group will then assume a different identity in addressing Mongolia’s FDI situation, namely: Government of Mongolia policymakers, foreign business people, or USAID technical experts/program planners. A Case Study Scenario and Terms of Reference, provided below, set the stage and outline the tasks to be accomplished by Working Groups. Note, however, that the key deliverable for each Working Group will be a concise oral presentation highlighting its perspective on FDI for Mongolia. Three pauses will be built into the schedule of the Trade and Investment Course, and at each, one Working Group will be called upon to offer its presentation to the other Course participants. Several documents on Mongolia’s economy, private sector and business environment are provided as references for the Working Groups. It is assumed that the USAID Resource Guide Foreign Direct Investment: Putting It to Work in Developing Countries (February 2007 edition) is also available. CASE STUDY SCENARIO Ever since the Trade and Investment Framework Agreement (TIFA) between Mongolia and the United States entered into force in July 2004, the Mongolian government – and foreign companies presently doing business in Mongolia – have been keenly interested in advancing toward signing a full US-Mongolia Free Trade Agreement (FTA). These parties believe that an FTA with the US will improve business conditions and economic performance in Mongolia, stimulate trade and investment with the US and encourage greater engagement in Mongolia on the part of other economic partners. Presentations and discussions at the Mongolia Investor Forum, sponsored by the Institutional Investor in New York in late March 2007, served to further underline the value of a future FTA with the US as an ingredient in a steadily improving future investment picture for Mongolia.1 Accordingly, Mongolia’s policy makers and business leaders want to be proactive, and demonstrate to the US (and to the international business community generally) that Mongolia sees an important strategic role for FDI in its development, offers foreign investors some very attractive opportunities, and is prepared to undertake real reforms to enhance its appeal as an FDI host economy. In doing so, these policymakers and business leaders believe they will both begin to make the case for an FTA with the US – at least as far as investment matters are concerned – and at the same time help stimulate FDI interest domestically and overseas. As a first step, the Government of Mongolia (GoM) and the North American-Mongolia Business Council (NAMBC) have jointly organized a seminar, to be billed as a “Public-Private Dialogue on FDI for Mongolia,” to discuss Mongolia’s critical FDI issues in an open and objective manner. The seminar will run for two days, and will be held in Ulaan Baataar. Attending this “Dialogue” will be a range of key GoM officials concerned with economic management and development planning, senior resident managers of the companies (both domestic and foreign) that are members of the NAMBC, and select representatives of USAID (and other leading donors) known for their expertise and experience in planning and executing economic growth programs. You have been invited to participate in the “Dialogue” seminar. You will do so in your capacity as a GoM policymaker, senior business person, or donor agency technical expert-program 1 The March 2007 Mongolia Investor Forum was an actual event. The Public-Private Dialogue on FDI in Mongolia is a fictitious event created for this case study. MONGOLIA FDI CASE STUDY 3 manager. Apart from listening to presentations and contributing to the overall discussions of the seminar, the “Dialogue” organizers expect you to join those colleagues whose professional profile is like yours and form a Working Group within the seminar – i.e., separate Working Groups for GoM policymakers, NAMBC business people, and USAID technical and program experts. The core work product of your Working Group will be a presentation that you and your colleagues make to the seminar as a whole, addressing critical FDI issues for Mongolia from your professional perspective. Of course, these presentations will need to be fact-based, so the “Dialogue” organizers have assembled a range of important documents for your reference. Good luck! TERMS OF REFERENCE FOR WORKING GROUPS “Dialogue” organizers have outlined a general Terms of Reference for each Working Group to help focus the application of your expertise as you consider Mongolia’s FDI flows and prepare your presentation. Note that each Working Group has a different core theme around which to perform its analysis and develop its perspective on Mongolia’s FDI needs and prospects. Also, in line with your theme, “Dialogue” organizers have also posed a few strategic questions for you to think about as you develop your presentation, but you will want to amend or broaden this list based on your own insights. 1. GOM Policymakers Core theme: Outline what you see as the strategic development role FDI has played in Mongolia’s economy, and how that role might evolve in the future. Key questions: 1. What have been Mongolia’s recent FDI trends and how have these related to the pattern of domestic investment generally? Is this pattern typical for developing countries? 2. Looking across sectors, what have