Source: Business Monitor International                  Date: 10 November, 2010

783 years after the death of Genghis Khan, and 20 years after the Democratic Revolution which heralded a system of multi-party democracy and a market economy, Mongolia is about to be catapulted back onto the international scene. Why? Because Mongolia is going to be the fastest growing economy in the world in the next decade, and we want to tell everybody about it.

When you look at the facts, you can hardly disagree with this assessment. Mongolia has massive resources, with some of the world’s biggest untapped reserves of copper, gold, coal, uranium and a host of others. Many of these are right next to the world’s most populous country, and its most compelling consumer story: China. What is more, Mongolia is a functioning parliamentary democracy, which I think makes it a far safer bet over a multi-year time horizon than most other commodity plays. Finally, following the abolition of the windfall tax on the profits of foreign companies in 2009, the business environment suddenly looks a whole lot more attractive.

And make no mistake about it, this is a boom which has already started.

Aside from a mining boom, I think there will be major opportunities for investors in other areas of Mongolia. Power and infrastructure are highlighted as particularly attractive. Given the low base that Mongolia is starting from, it is not hard to see how these sectors will benefit as major investment into the mining sector starts to arrive. Real estate should also get a major boost, as rapidly expanding domestic and foreign firms look for increased office and living space.

True, the Mongolian growth story is not without its risks. The banking sector still looks shaky, with banks’ capital bases having taken a massive hit during the global financial crisis, and asset quality only slowly improving (NPLs were above 17% of the total in late 2009). Inflation is also a concern, with rising global food prices likely to ensure this remains the case into 2011. Finally, although the government is fairly investor friendly, it has shown itself capable of making things difficult at certain times in the past.

Over the long run, though, the rewards for those willing to take the plunge now are likely to be huge.