Director, Kyrgyz Project Promotion Agency
The Kyrgyz Republic is widely recognised as one of the most forward-looking and reform-oriented republics of the CIS. The first central Asian republic to claim independence from the Soviet Union, Kyrgyzstan offers investors five compelling reasons for serious interest in investing in the republic:
Kyrgyzstan's most significant natural resources include: water and major hydroelectric power potential; gold and other non-ferrous metals; livestock, leather and wool; other agricultural products such as nuts and fruit; unique natural beauty, for which it is well known throughout the former Soviet Union, leading to significant leisure industry potential, especially around Lake Issyk-Kul and in the Tien-Shan mountains and foothills.
Legal environment and taxation
The main area of interest to foreign investors is the law 'On Foreign Investment', amendments to which are expected to be approved by the President by the end of this year. The main features of the amended foreign investment law are:
Taxes payable by enterprises with foreign involvement are the same as for wholly Kyrgyz enterprises, although some enterprises may negotiate tax incentives with the Government. Profits tax is 30 per cent and VAT 20 per cent. Excise duties vary between ten per cent (gold) and 35 per cent (carpets). There are additional corporate taxes for road use and emergency situations. Employers' contributions to the Social Fund are 34.5 per cent. An important exception from these general rules is the taxation regime in the country's special economic zones, which offer excellent opportunities for international trade and export-oriented manufacturing and services.
The privatisation programme has had two principal functions, one being the equitable redistribution of State property. The other was the quickest possible normalisation of the legal, financial and management status of Kyrgyz enterprises in order to offer attractive targets for foreign and domestic investment as quickly as possible. The three-stage programme has been completed with equity in the eleven largest enterprises now available to strategic investors. These enterprises include the republic's largest industrial engineering plant based in Bishkek, once an employer of more than 15,000; the national airline, Kyrgyz Aba Joldoru, whose assets include a substantial portfolio of land and servicing facilities; Kyrgyztelecom, the national telecommunications company; Kyrgyzenergoholding, the electricity generation, transmission and distribution corporation; the national coal-mining operation Kyrgyzkomur, and two major non-ferrous metals mining and refining companies. Other opportunities, in sectors that can be expected to deliver significant returns in the relatively short run, include food processing, a well developed sector in the Soviet period now in need of improved management and processing equipment, wool and leather, financial services and tourism. Energy-intensive industries, such as silicon production and processing, also offer good potential.
Land may not be owned outright: it can only be occupied on a leasehold basis for periods of up to 99 years. Leaseholders have first refusal on lease extensions. Leases may be bought, sold and used as collateral.
The Public Investment Programme has made important improvements to infrastructure in transport, communications, agriculture and labour mobility. Spending on transport includes a $60 million refit of Bishkek Manas International Airport, to enable it to serve trans- and intercontinental air traffic. Other major projects include upgrading the Bishkek-Osh road, which will improve road links between the north and the south of the republic and beyond to Tajikistan and Uzbekistan, and the north-south rail link, which will also join a railway from China to Uzbekistan and thus to all the Turkic republics to the west and beyond. The telecommunications sector has also received public investment: privatisation is expected to provide significantly more. Investment in agriculture, with $113 million of $115 million already programmed or disbursed, focuses on rural credit, irrigation and roads can be expected to add significantly to the potential of a recently privatised agricultural sector already showing improvements in yields after restructuring. Two multilateral projects with the Ministry of Labour and Social Protection will increase the efficiency of the labour exchange system.
Macroeconomic stability and GDP growth
Kyrgyzstan has been one of the first former Soviet Union countries to achieve macroeconomic stability and sustained growth after a painful period of transitional reforms. The current annualised rate of inflation is about 20 per cent and is projected to be in single digits by 1999. The government budget deficit has been brought down to between five and six per cent of GDP, almost wholly covered by non-inflationary means of financing. The improving macroeconomic situation and the comprehensive structural reforms are fuelling this new growth in the Kyrgyz economy. The turnaround in GDP growth took place in 1995-96, led by the rapid reforms in agriculture, flourishing trade and services and large externally financed projects such as the Kumtor gold mine, worth $360 million. In 1996 GDP growth exceeded five per cent and there is every reason to expect even better performance in 1997. The recovery is developing a broad base involving new sectors and areas in response to the general expansion in economic activity. It is expected that the GDP growth will remain healthy over the coming years at a minimum of between three and five per cent.
Regional economic development
Kyrgyzstan has been described as the Switzerland of Central Asia, not without justification. Although the republic is not in itself a large market, it is situated close to four huge ones: Russia, China, the Turkic republics stretching across Central Asia to the edge of Europe, and the Indian sub-continent. Kyrgyzstan is the most politically liberal, stable and organised state in the region, and its reputation as a regional peace-broker is growing. A number of regional organisations, such as the customs union with Belarus, Russia and Kazakhstan, the economic union with Kazakhstan and Uzbekistan, the Economic Co-operation Organisation with Turkey, Iran, Pakistan and the CIS, give Kyrgyzstan access to all these markets. Kyrgyzstan also has observer status at the World Trade Organisation and is likely to be the first Central Asian republic to gain full membership.
With growing regional and national investment in transport infrastructure, the certainty of rapid regional economic development and the unmatched political and economic openness and stability the republic can offer, Kyrgyzstan has acknowledged potential as a reliable long-term gateway to the Central Asian region.