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Mongolia’s Economic Recovery to Continue in 2018 and 2019

MD Staff

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Mongolia’s economic growth will remain solid in 2018 and 2019, albeit with slight moderation, following a strong performance in 2017 as coal exports and mining investments strengthened, according to a new Asian Development Bank (ADB) report.

In its latest Asian Development Outlook (ADO) 2018, ADB projects Mongolia’s gross domestic product (GDP) growth to moderate to 3.8% in 2018 before rising again to 4.3% in 2019 from the 5.1% growth in 2017. This is following the 1.2% growth in 2016. Continued investment in mining, particularly in the development of the Oyu Tolgoi underground mine, will continue to drive growth. Transportation bottlenecks, however, will prevent coal exports from matching 2017 performance, although these will ease somewhat in 2019.

“Mongolia’s growth prospects remain solid for 2018 and 2019,” said Yolanda Fernandez Lommen, ADB Country Director for Mongolia. “Sustained investment into the mining sector will form a basis for continued growth. The strong performance against the International Monetary Fund program is helping to restore investor confidence and improve macroeconomic stability. Continued government commitment to this program will be key in ensuring that macroeconomic buffers are built up, reducing Mongolia’s vulnerability to boom-bust cycles in the future. This will be critical to ensure that the investment into Mongolia’s mineral wealth forms a backbone of sustainable and inclusive growth while the conditions are created to support economic diversification and higher productivity growth.”

Inflation will accelerate to 8% in 2018 and ease to 7% in 2019, from the 4.3% recorded in 2017 following the 24.7% depreciation of the Mongolian togrog in 2016, which affected import prices on top of higher commodity prices due to drought and higher excise taxes. Rising domestic demand and international oil and food prices, coupled with the effects of looser monetary policy in 2017, will continue to drive inflation higher in 2018. These effects will be less pronounced in 2019 as oil prices and domestic demand subside.

Mongolia’s budget deficit is projected to equal 6.4% of GDP in 2018 and 5.1% in 2019, from 3.9% of GDP in 2017, as expenditure on social insurance, welfare, and equipment increases, coupled with a likely reduction in budget revenue as reforms to ease reporting requirements and the tax burden for small and medium-sized enterprises take place. A sharp recovery in foreign direct investment, financial support from multilateral development partners, and better terms of trade allowed the country to refinance a major part of its external debt. Gross reserves more than doubled, reaching 5.5 months of imports. These developments pushed the value of the togrog up by 2.5% against the US dollar. The current account deficit will narrow to 6.3% in 2018 before widening to 7% in 2019.

Downside risks to the outlook include lower coal and copper prices, disruptions to the successful implementation of the extended fund facility, higher meat prices, interruptions to Oyu Tolgoi production or investment, and worsening financial instability arising from the bank restructuring program. Upside risks to growth include higher commodity prices and a possible deal on large infrastructure projects tied to existing mining production.

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Renewable Energy the Most Competitive Source of New Power Generation in GCC

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Renewable energy is the most competitive form of power generation in Gulf Cooperation Council (GCC) countries, according to a new report published today by the International Renewable Energy Agency (IRENA). Abundant resources, together with strong enabling frameworks have led to solar PV prices of below 3 cents per kilowatt hour and dispatchable concentrated solar power (CSP) of 7.3 cents per kilowatt hour, which is less than some utilities in the region pay for natural gas.

IRENA’s new ‘Renewable Energy Market Analysis: GCC 2019’ launched during Abu Dhabi Sustainabilty Week, says achieving stated 2030 targets can bring significant economic benefits to the region including the creation of more than 220 000 new jobs whilst saving over 354 million barrels of oil equivalent (MBOE) in regional power sectors. The targets could reduce the power sector’s carbon dioxide emissions by 136 million tonnes (22 per cent reduction), while cutting water withdrawals in the power sector by 11.5 trillion litres (17 per cent reduction) in 2020.

The findings come as GCC economies seek to diversify their economies against the backdrop of fast-growing domestic energy demand and a desire to safeguard hydrocarbon export revenues for the future.

“The GCC is among the most attractive regions in the world to develop large-scale solar and wind energy projects as a result of resource abundance and a favourable policy environment, a fact that is backed up by record low prices,” said IRENA Director-General, Adnan Z. Amin. “As a fossil-fuel exporting region, the GCC’s decisive move towards a renewable energy future is a signal to global investors and to the energy community that we are experiencing a step-change in global energy dynamics and a true energy transformation.”

“The UAE’s commitment to diversifying the energy mix is central to our long-term economic growth and sustainable development objectives,” said H.E. Suhail Al Mazrouei, UAE Minister of Energy. “IRENA’s GCC analysis provides further evidence of the strong socio-economic case for renewable energy deployment, from job creation to emission reductions. As we look to add generation capacity to serve growing populations and expanding economies, renewables will increasingly serve as central pillar of low-carbon development.”

At the end of 2017, the region had some 146 GW of installed power capacity, of which renewable energy accounted for 867 megawatts. Around 68 per cent this capacity was in the UAE. This represents a four-fold increase on capacity in 2014. Following the UAE are Saudi Arabia with 16 per cent and Kuwait with nine per cent of regional capacity.

With renewable energy targets now in place across the region, the GCC is poised for a significant acceleration in renewables deployment as countries pursue national goals. Under current plans, the region will install a total of almost 7 gigawatts (GW) new power generation capacity from renewable sources by the early 2020s.

Solar PV dominates the region’s renewables outlook, accounting for three-quarters of the regional project pipeline, CSP and wind accout for 10 per cent and nine per cent respectively. Solar-assisted enhanced oil recovery in Oman is also expected to contribute about 1 gigawatt-thermal (GWth) in 2019.

Proactive policies are central to accelerating renewable energy deployment, per the report, suggesting that lessons can be drawn from the GCC countries where substantial inroads have been made thanks to firm government commitments and credible, time-bound targets with a clear focus on a supportive business environment for investments.

IRENA

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Corporate tax remains a key revenue source, despite falling rates worldwide

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Taxes paid by companies remain a key source of government revenues, especially in developing countries, despite the worldwide trend of falling corporate tax rates over the past two decades, according to a new report from the OECD.

A new OECD report and database, Corporate Tax Statistics, provides internationally comparable statistics and analysis from around 100 countries worldwide on four main categories of data: corporate tax revenues, statutory corporate income tax (CIT) rates, corporate effective tax rates and tax incentives related to innovation.

The new OECD analysis shows that corporate income tax remains a significant source of tax revenues for governments across the globe. In 2016, corporate tax revenues accounted for 13.3% of total tax revenues on average across the 88 jurisdictions for which data is available. This figure has increased from 12% in 2000.

Corporate taxation is even more important in developing countries, comprising on average 15.3% of all tax revenues in Africa and 15.4% in Latin America & the Caribbean, compared to 9% in the OECD.

Corporate tax revenues have also held up when considered as a percentage of GDP, where the average share increased from 2.7% of GDP in 2000 to 3.0% in 2016 across the jurisdictions included in the database.

The new OECD analysis shows that corporate tax remains a key source of revenue, despite a clear trend of falling statutory corporate tax rates – the headline rate faced by companies – over the last two decades. The database shows that the average combined (central and sub-central government) statutory tax rate fell from 28.6% in 2000 to 21.4% in 2018. More than 60% of the 94 jurisdictions for which tax rate data is available in the database had statutory tax rates greater than or equal to 30% in 2000, compared to less than 20% of jurisdictions in 2018.

Comparing statutory corporate tax rates between 2000 and 2018, 76 jurisdictions had lower tax rates in 2018, while 12 jurisdictions had the same tax rate, and only six had higher tax rates. In 2018, 12 jurisdictions had no corporate tax regime or a corporate income tax rate of zero.

The OECD analysis highlights that CIT revenues are influenced by many factors, and therefore focusing on headline statutory tax rates can be misleading. For example, jurisdictions may have multiple tax rates with the applicable tax rate depending on the characteristics of the corporation and the income. Progressive rate structures or different regimes may be offered to small and medium-sized companies, while different tax rates may be imposed on companies depending on their resident or non-resident status. Some jurisdictions tax retained and distributed earnings at different rates, while some impose different tax rates on certain industries. Lower tax rates are often available for firms active in special or designated economic zones, and preferential tax regimes offer lower rates to certain corporations or income types.

Another factor influencing CIT revenues is the definition of the corporate tax base. The OECD Corporate Tax Statistics database assesses how standard components of the corporate tax base reduce the effective tax rate faced by taxpayers, including the effects of fiscal depreciation and several related provisions, such as allowances for corporate equity.

Taking these provisions into account, the database shows that “forward-looking” effective tax rates are generally lower than statutory tax rates, with an average reduction of 1.1 percentage points observed in 2017 across the 74 jurisdictions analysed in the database. Targeted tax incentives, such as for research and development (R&D) expenditures and intellectual property (IP) income, are widely used to reduce the corporate tax burden for specific activities.

The new database is intended to assist in the study of corporate tax policy and expand the quality and range of statistical information available for analysis under the OECD/G20 Base Erosion and Profit Shifting (BEPS) initiative. In 2015, the OECD reported that base erosion and profit shifting was having significant effects on the corporate tax base, estimating revenue losses to governments from BEPS in the range of USD 100-240 billion (2014 figures), equivalent to 4-10% of corporate tax revenues.

The new database, which will be updated annually, aims to improve the measurement and monitoring of BEPS. Future editions will also include an important new data source – aggregated and anonymised statistics of data collected under country-by-country reporting now being implemented under BEPS Action 13 – that will allow “backward-looking” assessment of effective tax rates actually paid by firms.

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Global Commission Describes New Geopolitical Power Dynamics Created by Renewables

MD Staff

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Political and business leaders from around the world have outlined the far-reaching geopolitical implications of an energy transformation driven by the rapid growth of renewable energy. In a new report launched today at the Assembly of the International Renewable Energy Agency (IRENA), the Global Commission on the Geopolitics of Energy Transformation says the geopolitical and socio-economic consequences of a new energy age may be as profound as those which accompanied the shift from biomass to fossil fuels two centuries ago. These include changes in the relative position of states, the emergence of new energy leaders, more diverse energy actors, changed trade relationships and the emergence of new alliances.

The Commission’s report ‘A New World’ suggests that the energy transformation will change energy statecraft as we know it. Unlike fossil fuels, renewable energy sources are available in one form or another in most geographic locations. This abundance will strengthen energy security and promote greater energy independence for most states. At the same time, as countries develop renewables and increasingly integrate their electricity grids with neighbouring countries, new interdependencies and trade patterns will emerge. The analysis finds oil and gas-related conflict may decline, as will the strategic importance of some maritime chokepoints.

The energy transformation will also create new energy leaders, the Commission points out, with large investments in renewable energy technologies strengthening the influence of some countries. China, for instance, has enhanced its geopolitical standing by taking the lead in the clean energy race to become the world’s largest producer, exporter and installer of solar panels, wind turbines, batteries and electric vehicles. Fossil-fuel exporters may see a decline in their global reach and influence unless they adapt their economies for the new energy age.

“This report represents the first comprehensive analysis of the geopolitical consequences of the energy transition driven by renewables, and a key milestone in improving our understanding of this issue,” said Commission Chair Olafur Grimsson, the former President of Iceland. “The renewables revolution enhances the global leadership of China, reduces the influence of fossil fuel exporters and brings energy independence to countries around the world. A fascinating geopolitical future is in store for countries in Asia, Africa, Europe and the Americas. The transformation of energy brings big power shifts.”

“The global energy transformation driven by renewables can reduce energy-related geopolitical tensions as we know them and will foster greater cooperation between states. This transformation can also mitigate social, economic and environmental challenges that are often among the root causes of geopolitical instability and conflict,” said Adnan Z. Amin, Director-General of IRENA.

“Overall, the global energy transformation presents both opportunities and challenges,” continued Mr. Amin. “The benefits will outweigh the challenges, but only if the right policies and strategies are in place. It is imperative for leaders and policy makers to anticipate these changes, and be able to manage and navigate the new geopolitical environment.”

The Commission says countries that are heavily reliant on fossil fuel imports can significantly improve their trade balance and reduce the risks associated with vulnerable energy supply lines and volatile fuel prices by developing a greater share of energy domestically. With energy at the heart of human development, renewables can help to deliver universal energy access, create jobs, power sustainable economic growth, improve food and water security, and enhance sustainability, climate resilience and equity.   The report was launched by the Commission at IRENA’s ninth Assembly in the presence of ministers and senior policy makers from more than 150 countries.

IRENA

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