A
recent analysis by Reuters says Mongolia is likely to emerge as a key
investment target for global mining giants, but there are several risks to watch.
Referring to the country’s weak political parties and its poor regulatory
capacity, it notes that Transparency International rated Mongolia 120th in its
2009 corruption perception index, down from 102nd in 2008. The significant
things to watch are:

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How will Mongolia use the proceeds from its mining projects? It has set up
education and fiscal stabilization funds, but it has also promised direct
dividends for Mongolian citizens.

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How will it deal with rapid economic change as foreign investment transforms
large parts of the country”s mainly rural economy? Investment in the Oyu Tolgoi
copper deposit alone stands at roughly the equivalent of the country”s entire
GDP of 2009.

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The likely shape of a new law to govern issue and use of mining licenses.

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How will the government handle populist pressures to maintain greater control
over the country”s strategic assets?

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The growing dominance of China in Mongolia”s economy has prompted many of
Mongolia”s elite to lean further towards Russia, but China is unlikely to step
aside.

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China rejected the bid for Khan Resources by state nuclear firm CNNC after
Ulaanbaatar revoked the company”s licenses. Is Russia now in the driving seat
in the battle to secure more Mongolian uranium? What will be China”s next move?

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Will Mongolia”s efforts to bring in overseas investment be derailed by the
pressures being exerted by Russia and China?

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How much State control will the government maintain? Will the ownership model
in all key “strategic resource” projects be the same as in Tavan
Tolgoi, or will Mongolia be forced to sell properties outright in order to
kickstart economic growth?