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Risk Management in Mongolia: A Challenging Business Environment
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Mongolia, a vast landlocked country with rich mining resources and a strategic geographical position between China and Europe, presents a challenging business environment due to its high-risk political and economic situation, difficult business climate, and lack of transparency.
Corporate Default Probability and Business Climate Rating
According to Coface, Mongolia’s corporate default probability is very high, earning a rating of D. The country’s business climate rating is also low, with a score of C, indicating a difficult environment for companies operating in Mongolia.
Challenges Facing Mongolia
Despite its strengths, including the development of colossal mining resources and potential for diversification of production, Mongolia faces significant challenges:
- Economic Vulnerability: Small economy vulnerable to changes in commodity prices and Chinese demand.
- Landlocked Status: Internal political dissensions pose risks and limit access to international markets.
- Environmental Concerns: Massive land degradation and desertification, with 90% of its vast grasslands prone to dust storms.
Corruption and Political Instability
Corruption is rampant in Mongolia, with the country ranked 111th out of 180 countries in Transparency International’s corruption perceptions index. This, combined with internal political dissensions, poses significant risks for businesses operating in the country.
Economic Recovery and Public Finances
Mongolia has struggled to recover from the COVID-19 pandemic, which disrupted coal exports to China and impacted private consumption. However, the economy is expected to accelerate in 2022 as vaccination rates increase and transportation issues are resolved. Public finances will also recover, but remain exposed to external shocks.
Foreign Investment and Risk Management
Despite these challenges, Mongolia remains an attractive destination for foreign investors, with solid FDI inflows expected in 2022. However, businesses operating in the country must be prepared to navigate a complex and difficult environment, where corruption and political instability are major risks.
To mitigate these risks, companies must implement effective risk management strategies, including:
- Careful Planning: Understand the complexities of doing business in Mongolia.
- Ongoing Monitoring: Monitor market trends and potential risks.
- Effective Mitigation Strategies: Develop strategies to minimize the impact of potential risks.
By understanding the challenges of operating in Mongolia, companies can better prepare themselves for success in this high-risk market.