Strict foreign investment laws to be abolished

THE Mongolian Government is set to repeal a controversial law restricting foreign ownership in ‘strategic sectors’, following a 43 per cent decline in foreign direct investment.
The Strategic Entities Foreign Investment Law (SEFIL), established in May 2012, targeted ‘strategic’ industries including mining, finance, and media and telecommunications. The law required
foreign investors to seek government approval for acquisitions of more than 33 per cent equity, while acquisitions of more than 49 per cent equity required parliamentary approval. State-owned firms also required approval to obtain interest in any ‘strategic’ assets. Director of the Foreign Investment Regulations and Registration Department of the Ministry of Economic Development Sereeter Javkhlanbaatar told media a new law would seek to quell concerns about investor limitations, particularly in relation to the mining industry.
“We won’t separate the market between strategic and non-strategic,” he said.
“We won’t have approval systems for strategic sectors, but we will have for state-owned companies.”
SEFIL was introduced just before parliamentary elections last year, as lawmakers sought to block a bid by the Aluminium Corporation of China (Chalco) to acquire a majority stake in a Mongolian coal deposit.
“Chalco is a state-owned enterprise and they can buy any mine in Mongolia,” Ministry of Mining director of planning Ch Otgochuluu said at a conference.
“They could introduce a dumping price and distort the market. In that case, they might be the buyer and producer at the same time and bring the price down very low.
“The Chinese mining companies want to buy Mongolian mining companies but we don’t want that. They have a different system. A state capitalism. We want to protect the small and medium-sized enterprises.
“Mongolia is trying to have an economy dominated by private ownership. We want prices to be set by market mechanisms.”
According to the Ministry of Economic Development, a new law was being discussed by the cabinet and would be presented to a specially convened session of parliament during September. The proposed changes would undo many of the restrictions placed on foreign investment. Mr Javkhlanbaatar said that government also intended to establish an approval board – similar to what
exists in Australia – to review proposed acquisitions by state-owned firms. It would also seek to create an investment agency, Invest Mongolia, to attract foreign investment.