Mongolia, placed right between its two more economically important neighbors China and Russia, is the 19th largest country in the world by geographical size. Despite this, it is also the most sparsely populated with a population of only about 3 million.
This, along with the fact that Mongolia is rich in natural resources with around US$1.3 trillion worth of proven minerals, metals, coal and other commodities has drawn China, which needs many of these as it depletes its own, to invest in Mongolia.
While once isolated from the global economy, Mongolia has benefitted in recent years from a massive amount of Chinese capital flowing in. China, which is now the world’s largest economy in real terms, has in some ways overwhelmed the much smaller frontier market to its north.
The result has made Mongolia one of the fastest growing economies in the world over the past decade. Double-digit annual growth was common in the 2000s, but global economic issues and inefficiency in government has led to a slowdown. Mongolia had “only” 7.8% growth in 2014.
Small Country, Big Oppurtunity
Mongolia is vast country and takes up an area larger than area larger than Japan, Germany and France combined, yet 45% of its population live in just the capital of Ulan Bator. The city is growing by around 40,000 people per year, but infrastructure development has not kept up – something that China is now helping with.
The commodities boom in Mongolia is supporting a rapidly growing middle class among Ulan Bator’s population of 1.3 million. This, combined with the contribution of thousands of foreigners who work in mining activities, is straining the city’s infrastructure. When designed by Soviet planners, Ulan Bator was planned as a town for less than 600,000 individuals.
These problems have not gone unnoticed by the Mongolian government, which has a number of projects planned to help some of Ulan Bator’s overcrowding. Perhaps the most ambitious is the construction of an entirely new capital, Maidar City, which is designed for 300,000 people and will be located 30km from Ulan Bator.
Another plan involves billions of dollars worth of infrastructure enhancement in the gerdistricts, poorer communities in the hills of Ulan Bator. However, many doubt that Mongolia’s government, which is democratic, will be able to pass the legislation.
How to Invest in Mongolia
Because of the massive scale of these projects, the lack of a certain timeframe, and doubts that they will provide a comprehensive solution, the private sector has a large window of opportunity to offer other solutions. Mongolia is an ideal place for innovative entrepreneurs, and those who can make life easier for Ulan Bator’s surging middle class will benefit.
For investors, Mongolia has a stock exchange of 332 listed companies with a market capitalization of around US$3 billion dollars. As recently as 2011, it was the second best performing stock market in the world with gains of over 57%.