The Democratic Party (DP) has peacefully won the 28 June elections but given the absence of a majority in Parliament, it has called for a coalition with two smaller parties including the Mongolian People's Revolutionary Party (MPRP). That would mean that the DP does not wish to see the previous coalition continue with the other large party, the Mongolian People's Party (MPP), which will likely be sent into opposition. A government is expected to be formed by September.

Impact on country risk

The presence of the nationalist MPRP within the coalition might be problematic for political stability and will raise fears among investors. The MPRP is indeed headed by former President Enkhbayar, who was barred from elections due to corruption charges and will stand trial. The MPRP is also known as being populist and nationalist in its stance, meaning there is a risk the contract for the big Oyu Tolgoi copper mine might be renegotiated while decisions on control over the huge Tavan Tolgoi coal mine are still pending. The foreign investment law adopted last May by the Parliament imposes restrictions (e.g. government approval required in major deals or when foreign investors are state-owned) on foreign ownership in strategic sectors, including mineral resources and banking. The handling of foreign investment laws and mining revenues will be crucial for Mongolia’s future economic boom as FDI is essential to the exploitation of Mongolia’s mining wealth while a fair distribution of mining revenues is necessary to reverse increasing inequalities and avoid social instability. In the aftermath of the election, foreign investors will hope for a clear and foreseeable regulatory framework and request more certainty about past acquisitions. Meanwhile, on the economic side, China’s lower commodity demand will remain a top concern as China is by far Mongolia’s largest export destination. That is likely to reinforce Mongolia’s (economic but also political) will to diversify away from China in order to avoid overdependence on China to the profit of western and other Asian investors.

Analyst: Raphaël Cecchi, r.cecchi@credendogroup.com