Mongolia Business Forecast Report Q3 2012

Executive Summary
Core Views
Major Forecast Changes
Key Risks To Outlook
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Ratings
Domestic Politics
Political Tensions Point To Growing Resource Nationalism
Rising political tensions in the run-up to parliamentary and local elections at the end of June will intensify the uncertainty surrounding
Mongolia's investment climate, particularly relating to the mining sector Resource nationalism could become an increasingly dominant
political theme among the opposition, which will have received a boost from the controversial arrest of former president Nambaryn
Enkhbayar in April
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Transforming Minerals Into Wealth
The Mongolian government will face major domestic challenges over the coming decade as the country's mining boom takes off
Indeed, it will need to strike a balance between distributing mining revenues in a way that is acceptable to the population while avoiding
stoking inflation Moreover, we believe it will face a tough task in managing the social change that the mining boom will create, including
immigration and the growing gap between rich and poor
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Ratings
Economic Activity
Regulatory Uncertainty Taming Growth Outlook
As economic growth continues to be buoyed by strong external demand for mining exports, we believe that increased mining output
over the course of 2012 and 2013 will help to keep real GDP growth in the double digits However, with increasing signs of resource
nationalism and regulatory uncertainty appearing against the backdrop of rising political tension, the investment climate will likely take a
hit, which will see growth moderate from the 17 3% recorded in 2011
TABLE: ECONOMIC ACTIVITY
Balance Of Payments
External Position At The Mercy Of Investors
Mongolia's balance of payments position will remain heavily dependent on the goodwill of foreign investors, as the country will need to
finance its enormous capital goods and transportation services imports over the coming years Although new mining output capacity will
offer some respite, a marked deterioration in the investment climate could conjure up considerable systemic risks
TABLE: CURRENT ACCOUNT
Exchange Rate Policy
MNT: Bolstered By New Mining Capacity
Monetary Policy
More Aggressive Tightening On The Way
Runaway consumer price inflation will see the Bank of Mongolia continue tightening monetary policy, and we expect an additional
basis points of interest rate hikes this year to 13 50% Although concerns over slowing activity in China may create a dilemma for the
central bank, we believe that inflation will present too great a risk to social and economic stability to ignore
TABLE: MONETARY POLICY
Key Sector Outlook
Coking Coal: Industry Set To Grow
Chalco's recent US$926mn offer for a controlling stake in Mongolia-focused coking coal miner SouthGobi Resources is a strong sign
of the industry's potential Mongolia's proximity to China and its favourable mining conditions make Mongolian coking coal extremely
competitive relative to coking coal from other countries such as Australia or Canada
Chapter 3: 10-Year Forecast
The Mongolian Economy to 2021
Investments And Exports To Drive Growth
Mongolia's bounce back from the global financial crisis, in line with rising prices for key commodities, has been highly impressive, and
we expect strong rates of growth to continue through the long term
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 4: Business Environment
SWOT Analysis
BMI Business Environment Risk Ratings
Business Environment Outlook
Institutions
TABLE: BMI BUSINESS AND OPERATION RISK RATINGS
TABLE: BMI LEGAL FRAMEWORK RATING
TABLE: LABOUR FORCE QUALITY
TABLE: EMERGING EUROPE – ANNUAL FDI INFLOWS
Infrastructure
TABLE: TRADE AND INVESTMENT RATINGS
Market Orientation
TABLE: TOP EXPORT DESTINATIONS
Operational Risk
Chapter 5: BMI Global Assumptions
Global Outlook
Muddling Along, As Expected
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES REAL GDP GROWTH FORECAST
TABLE: REAL GDP GROWTH CONSENSUS FORECASTS
TABLE: EMERGING MARKETS REAL GDP GROWTH FORECAST 35