The construction sector has seen a lot of activity in the past few years. The quarterly GDP growth of Mongolia's construction sector surpassed 130 percent y-o-y growth in the first quarter in 2011 and has remained high since then. Industry and construction has expanded 8.4% y-o-y in real terms. Mongolia is rolling out an extensive programme of developments that includes the construction of roads, bridges and homes which is expected to transform the economy and pave the way for widespread urbanization.

 

The Mongolian government is funding majority of the projects, but is also looking to attract investment from the private sector for developments that include the building of satellite cities to reduce population density, road networks and infrastructure for power.  The government has recently passed the Concession Law which is designed to create an investor-friendly institutional arrangement. This legal framework accommodates the establishment of Public-Private Partnership (PPP), by which foreign funds are allowed to invest in certain asset classes (utility and infrastructure, for instance) with certain legal protection.

 

The government has announced that MNT 800bn (US$ 602.6 mn) would be spent for the development of infrastructure in Mongolia. Approximately MNT 32 bn will be spent on railways, MNT 330 bn on roads and MNT 447 bn for general construction and infrastructure. The government is also expecting to generate MNT 22.9 bn (US$ 17.5 mn) in terms of foreign and domestic investment. Almost 115 new construction and transport projects earmarked for the capital city of Ulaanbaatar which are scheduled to be completed by 2030 at an estimated cost of US$ 9.9 bn. Approximately 42% of the population currently lives in the city of Ulaanbaatar and this number is expected to rise to 55% over the next 18 years.  One of the largest ongoing construction projects, the "Homes for 100,000 Households" programme, is set to enter its next phase.

 

Since only 5% of licensed domestic road construction companies are currently capable of large construction projects, hence there are serious efforts to bring in foreign investors. A US-based firm FL Smidth has won a US$ 112 mn contract with the local Mongolyn Alt Group to supply a greenfield cement plant with a 3000-tonnes-per-day supply capacity, some 330 km from Ulaanbaatar.

 

Prophecy Coal Corp, a Canadian listed company engaged in developing energy projects in Mongolia has entered into a Cooperation Covenant with Energy Authority of Mongolia. They would be providing required support for the construction and operation of the Chandgana 600 MW mine-mouth power plant in central Mongolia and its capacity to supply the necessary electricity to the central and eastern region's power grids by 2016.

 

In October 2011, a major consortium of South Korean companies has signed a US$ 3 billion preliminary rail deal with Mongolian Railway to help transport coal out of Mongolia's Tavan Tolgoi - the world's largest untapped coal mine with an estimated 6.4 billion tons of reserves.

 

The Ministry of Road, Transportation , Construction and Urban Development (MRTCU) is seeking for up to US$ 2 billion in private investment for its road development project in northern Mongolia from Ulaanbaatar to Altanbulag, adjacent to Russian border. Almost MNT 4.9 trn (US$ 3.75bn) will be spent for the "New Up Building" programme, which aims at repairing 5572 km of roads and 900 km of highways connecting Ulaanbaatar with various provinces.

 

As the economy of Mongolia grows, the demand for infrastructure will also go up. To take advantage of this situation, the country will have to develop its infrastructure and transportation facilities as soon as possible. The new found wealth as well as increase in population is helping raise demand for cities and housing, and therefore infrastructure and cement. Although the government's initiatives are expected to fuel considerable growth in construction, more foreign investment and expertise is expected to bolster the sector's prospects in the long term.

 

(Source: Insight Alpha)