Political uncertainty ahead of Parliamentary elections in June 2012 has worried investors. While Mongolia's priority is to develop its economy, foreigners want to know if government can create a stable legal environment and about how it can handles pressures from Russia and China.

Although the government gave up on its idea to renegotiate for a 50 percent stake in the Oyu Tolgoi copper-gold mine, some politicians called for the resignation of the prime minister for that outcome. The controversy has spilled over to the Tavan Tolgoi coal deposit, having failed to put together an investment agreement for the western block portion of the project.

For the futures, investors will be looking at the progress of new laws through Parliament. The Democratic Party (DP) said in early January it will withdraw from the coalition government, leaving several ministerial vacancies. In the marketplace, commodities trader Trafigura and private equity investor Origo Partners Plc have formed a partnership to develop coal and iron ore deposits for export. Finally, foreign investors will be deterred by less than transparent approval procedures.

As the nation realizes growth, it will have to dodge economic threats such as “Dutch disease.” The government tries to put in mechanisms to protect against fluctuating commodity prices and use its wealth to feed development, but it is also under tremendous pressure to spread the wealth incurred from “pre-payments” from foreign firms.

As for its neighbors, China already dominates the economy, and the nation is vulnerable to Russia's whims regarding power and fuel exports. Investors will be watching to see if dependence grows or diminishes, and if the Chinese market for coal and minerals is a short-term or long-term situation. How the government handles a growing nationalist sentiment will also have great sway over foreign investors.