The Mongolia People’s Party returned to power with a landslide on June 29, taking more than two-thirds of the seats in the legislature, the General Election Commission reported on 30 June.

Mongolia’s Democrats, who have controlled government since 2012, were thrown out in an election with a higher voter turnout, 72.1%, after consistent declines in past elections.

The result demonstrates that Mongolia's democracy is a rare commodity in a region rife with dictators and police states (US Secretary of State John Kerry called it an “oasis of democracy” during a June visit), but investments in Mongolia have often been hampered by political risk from politicians’ pandering to nationalist sentiment.

Outgoing Prime Minister Chimed Saikhanbileg’s government presided over an economy that has gone from booming to flat, and a society dissatisfied with the direction the country is going. The mining industry is now in a slump because of a softened market for its coal and copper. Mongolia is also arguably hurting more than any other country in the world as the huge Chinese economic engine looses steam.

 “The fundamental thing is over-exposure to a single market for its mining products. Secondly, there was an issue of under-preparedness for the slump,” says Alex Skinner, a development manager for the construction and property development company Gobi Infrastructure Partners.

In 2011, the year before the Democratic Party took power, Mongolia racked up an astronomical GDP growth of 17.5% during the commodities boom. That compares with the Asian Development Bank’s projection of 0.1% growth this year. This wretched performance doomed the Democrats.

“A lot hinges on what happens directly after the election and what direction we take, and an awful lot will depend on FDI to Mongolia,” says Skinner.

Blame game

Although market conditions are hardly something a government can control, critics point to short-sighted mistakes made by politicians that have made things worse. Just before the Democrats came to power, parliament passed a cumbersome foreign investment law in reaction to an attempt by a Chinese state-owned company to buy up a large coal mine in the Gobi desert.

 “[Afterwards] they amended the Strategic Entities Foreign Investment Law and quit discriminating against foreign investors, but it was all too little, too late. Foreign investors already began to leave,” says Bontoi Munkhdul, the head of the market intelligence group Cover Mongolia.

Democrats made things worse with their attempts to renegotiate an investment agreement for the Oyu Tolgoi copper mine. Rio Tinto, the majority stakeholder that shares ownership of the mine with Mongolia, reacted by putting the underground expansion project on hold. The Tavan Tolgoi coking coal mine, the country's other flagship deposit, has also been beset with disputes.

Mongolia no longer seemed like a country that welcomed foreign investment any longer after an incident where over a hundred licenses were revoked, and another where an American was barred from leaving the country for two years because of a corporate tax dispute.

 “I don’t think the next government will be looking to continue populist policies,” says Skinner. “The upshot of everything that has gone on is having the public see there can be a negative long-term consequences from populist policies.”

The people versus investors

The discontent many voters feel has spilt over onto the streets of Ulaanbaatar. Two decades of democracy and capitalism has made towers rise from the ground, and attracted Western chains such as KFC and The Coffee Bean and Tea Leaf, but many on the street are no happier for it.

Market traders are angry that city authorities have cleared what was once a busy market place known as Tourist Street off to the sides and alleyways in order to give drivers more room. But there are still many who do business there, including Jantsan Batsaikhan. Carrying a fat wad of cash, he’s offering currency exchange right on the spot.

“I won’t support any incumbent parliamentarians, only new candidates,” he said in the days before the vote. He lost patience with government, he said, because it has failed to keep its promises to improve lives.

A bystander who overhears him shouts, “I won’t even vote! They only earn money for themselves.”

Many voters are sore from never seeing the benefit of the boom years, and they worry about the billions Mongolia has borrowed since 2012. Public debt stood at 59% of GDP at the end of 2014, according to credit ratings agent Fitch.

For many young people, finding work is tough, and retirees are scraping by on meagre pensions. Unemployment is listed at 11.6% by the National Statistical Office, but experts reckon the real number is higher.

Screwed up

While both investors and citizens hope to see the economy grow again, many Mongolians are still hesitant to trust foreign investors. According to the Sant Maral survey, 40.7% of those polled said the country's most-valuable mines should be only state-owned.

Meanwhile, investors have been vocal about their frustration with the government's hesitance to stand by agreements and work cooperatively with them.

Dale Choi, an analyst at Mongolia Metals & Mining believes the Mongolian People’s Party can deliver a more professional government that offers stability for investors. “The MPP victory on common sense economic arguments based on facts is a no-brainer,” he says, arguing that the MPP can do a better job to alleviate poverty, escape the economic crisis and bring professionalism to government.

As for the investors themselves, they’ve have shown their approval in the markets: The $500mn sovereign bonds due 2021 surged 3.5 points to 105.5/106.25 cents on the dollar, and the $500 million bonds from the Trade Development Bank due 2020 rose 2.5 points to 98/99, according to Reuters.

“In this week of Brexit blues, it's a relief to have at least one vote investors can cheer about,” says Lee Cashell, a real estate investor and founder of Asia Pacific Investment Partners. “We all hope the new administration will focus on continuing to win back foreign-investor trust and work hard to improve the economic situation on the ground.”