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Wednesday, July 6, 2011

Mongolia Briefing is a magazine and daily news service about doing business in Mongolia. We cover topics relating to the Mongolian economy, the market in Mongolia, foreign direct investment and Mongolian law and tax. It is written in-house by the foreign investment professionals at Dezan Shira & Associates

Mongolia Outranks China and Russia in World Bank’s ‘Doing Business 2012’ Report

Apr. 9 – Since the fall of the Soviet Union more than 20 years ago, Mongolia has emerged as one of the most democratic nations out of the former communist states across Central Asia. And while improvement can still be made, the country has become one of Asia’s most open and pro-business economies.

Mongolia is middle-ranking both in the world and the East Asia and Pacific region in terms of its investment climate, according to the World Bank’s Doing Business 2012 report. The country ranks 86th in the world for 2012, which is exactly average for the counties within its region and above neighboring China (91st) and Russia (120th), but below Kazakhstan (47th).

In terms of factors related to business regulations and the legal environment, the country continues to perform well. It ranks 26th for registering property, 29th for investor protection, 33rd for enforcing contracts and 57th for ease of paying taxes.

Personal incomes are taxed at 10 percent and corporate earnings at the same rate until they exceed MNT3 billion (around US$2.34 million), after which the level rises to 25 percent. Employers are required to pay an 11 percent social security contribution for their employees.

“Taxes are very low, the current is convertible, you can repatriate profits, and it’s pretty easy to set up a business. Mongolia is actually a much better investment destination than China and its taxes are lower than Hong Kong and Singapore,” Lee Cashell, chairman and managing partner of Asia Pacific Investment Partners, told Oxford Business Group.

For 2012, Mongolia raised eight places to 67th in “getting credit,” reflecting growth in the banking sector. The country’s commercial banks’ assets increased by 55 percent in 2011. Meanwhile, 90 percent of the total savings in banks is reportedly held by only 3 percent of the account holders. According to IMF estimations, 40 percent of Mongolia’s banking assets are in foreign currencies.

The country has fallen 10 places from last year in “starting a business,” down to 97th position. However, only seven procedures are required and the process usually takes 13 days, which is the regional average. Meanwhile costs, at 2.9 percent of income per capita, are much lower than the regional average.

Mongolia’s lowest indicator ranking is for “getting electricity,” at 171st. It takes, on average, 156 days to hook up to the power grid, according to the World Bank report.

Mongolia is also performs poorly on “trading across borders,” ranking 159th worldwide. This is associated with the high cost of transportation across the landlocked country with limited infrastructure. Export and import costs per container average US$2,265 and US$2,400, respectively, which are more than twice regional means.

Apart from limited infrastructure, Mongolia is still in desperate need of educational skills training, agricultural aid and technological transfer – specifically in the mining sector.

The country also ranks low for “resolving insolvency,” at 124th. Analysts explain it as a symptom of relatively low administrative capacity and lack of legal clarity.

Mongolia performs moderately well on the 2011 Corruption Perception Index drawn up by Transparency International, an anti-corruption organization. It currently ranks 120th in the world, with a score of 2.7 out of 10, with 10 being no corruption perceived. This is similar to its closest neighbors Russia (2.4), China (3.6), and Kazakhstan (2.7).

Moody’s rates Mongolia as B-1, which is four levels below investment grade. Standards & Poors’ rated Mongolia as a BB in 2011.

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