Whenever I take sides in an election, I always come down on the side that I perceive is more capitalist minded, more market friendly. No matter how people try to spin the ills of a free market system, and I have never been in favor of an unfettered system, and the virtues of socialism, totalitarianism, or whatever the term du jour is, there has never been a system that has lifted so many people out of poverty as capitalism. That brings me to Mongolia, which I have lovingly called, because I am a Trekkie at heart, the final frontier.
It’s about 18° F at night in mid-March, but things in Mongolia are beginning to heat up as the country moves towards general elections on June 29. Knowing people who invest there and reading all the reports about the battered economy that has suffered terribly because of commodity prices, the last thing a struggling economy needs in a developing nation is obstructionist politics, but that’s what we have here. I’ve never understood it. You see it on every continent, especially in developing markets which inherently have so many headwinds. Instead of working together for the good of the nation, opposing parties do just that ̶ oppose, and sometimes for no good reason. The same applies in Mongolia.
The ruling party, the Democratic Party, is led by Prime Minister Chimediin Saikhanbileg, who seems to want to do the best thing for his country, including attracting foreign direct investment (FDI). Every developing market needs FDI, and a country like Mongolia that is currently at the mercy of much larger economies, like China to whom they export 85% of their coal and copper, needs it badly. The opposition party, the Mongolian People’s Party (MPP), won about 33% of the vote in 2012 running on an anti-FDI platform. They have managed to block nearly everything in parliament, and I’m sure they believe that FDI is not in the best interest of the country, but I don’t think that’s true.
Mongolia has a great deal of mineral wealth which they cannot develop by themselves. They need outside expertise from companies like Rio Tinto. Because of this obstructionism, FDI fell from $5 billion in 2011 to just about $230 million last year, and that is a disaster. Luckily, this disaster had a silver lining in that the MPP was forced to back down and the prime minister, who survived a no-confidence vote, is now running full steam ahead to complete desperately needed agreements in mining and transportation.
So, is this the right time to invest in Mongolia? If the current party wins reelection, I would give investors a thumbs-up. If not, I would look to other places around the globe. The two companies that stand to do well if the current party does win reelection are Mongolia Mining and of course, Rio Tinto. So finally, as an investor and lifelong capitalist, I hope that Mr. Saikhanbileg does prevail in June and that Mongolia’s best days still lie ahead.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.SOURCE: Nasdaq