On April 19, the Mongolian parliament passed amendments to the government’s controversial strategic sectors foreign investment law, which was introduced a year ago to block strategic assets falling into foreign hands.
The amendments’ passage is an important step because the law, in its original form, was seen as a backlash against foreign ownership of Mongolian companies that accomplished nothing but to scare off foreign investors.
Mongolia is not unique in having such a law, but it needs large amounts of foreign investment to spur its growth and development.
Foreign direct investment fell 17% year on year to $3.9 billion in 2012 as a direct result of the law in its original form, while economic growth slowed to 12.3% from 17.5% in 2011.
Furthermore, companies listed on the Mongolian Stock Exchange plunged 19% year on year in 2012, while the Silk Road Mongolia Index, which tracks the share price performance of internationally listed Mongolia-focused companies, shrank 49% year on year as a result of sell-offs by investors.
Alisher Ali, founder and chairman of Silk Road Finance, a frontier markets investment group, says slowing FDI inflows must be a pressing concern for those in government.