Kyrgyzstan -- A Jewel of Central
Asia
8 2001 by Eric G. Postel and Yuri Nevenchanny
The Kyrgyz Republic is becoming an example of a successful transition to a free-market economy.
Located in the heart of Central Asia, Kyrgyzstan is a land-locked country the size of the England and Scotland (or the U.S. State of Washington). It is bordered by China, Kazakstan, Uzbekistan and Tajikistan. Located at the juncture of two great mountain systems (the Tien Shan and Pamirs), only one-eighth of the country lies lower than 1,500 meters (4,920 feet). Hence, the country's nickname: "The Switzerland of Central Asia". The scenic mountains, Lake Issy-Kul (the world's second largest mountain lake after Lake Titicaca) and the presence of many rare animal species (such as the snow leopard, Tien Shan bear, Marco Polo sheep and red wolf), all contribute to the country's natural beauty, and tourism potential.
Kyrgyzstan is sparsely populated with a total of 4.83 million people of whom less than 40% live in urban areas (2000 census). The country's capital is Bishkek, home to 670,000 people. The Kyrgyz people, who comprise 59% of the country's population, are traditionally Sunni Moslem and speak a Turkic language. From the 2nd century BC to the 19th century, there were many invasions of and migrations to the area, so that today more than 80 ethnic groups reside in the country. In 1876, Czarist Russian forces incorporated the region into the Russian Empire. Afterwards, there was an influx of Russians, but some have returned to their homeland during the last ten years and today they constitute 17% of the population. Russian is the de facto language of business and government in the country.
Declaring independence from the U.S.S.R. in 1991, Kyrgyzstan was at the forefront of economic and political reform in the former Soviet Union. On the political front, political figures from the communist block won a majority of the seats in Parliament in the 1995 and 2000 elections, but the country's President (Askar Akayev, re-elected in 2000 for a third term) is the only head of state in Central Asia who was never part of the Soviet ruling elite.
Economically, Kyrgyzstan is in the midst of a major transformation. After 1991, the largely agrarian country lost all Soviet subsidies. its ties to traditional Soviet markets were disrupted, with the large mechanical and electrical engineering manufacturing sector being particularly affected. Since 1991, the country has worked to eliminate centralized economic controls, restructure and privatize the economy, and attract new investment. Inflation has been dramatically reduced from more than 1,200% in 1993 to the current 10% (below 5% over 7 months of 2001). More than 450 companies have been privatized to date. Some of them were listed on the local stock exchange (68 as of 1 July 2001), but share turnover is minimal. The Kyrgyz government has announced plans to privatize the largest companies in the strategic sectors of the economy, such as mining, telecommunications, energy, aviation, printing and recreation; although, some steps have been made only in energy, mining and recreation.
Agriculture is the largest economic sector, accounting for approximately 50% of total GDP. Livestock raising (primarily cattle, sheep, yaks and horses) is the primary activity. Grains, cotton, fruit, tobacco and silk are also produced, but only in the country's lower elevations.
Blessed with extensive deposits of gold, coal, antimony and uranium, the bulk of initial foreign investment has been concentrated in the mineral extraction sector. The country also has considerable hydroelectric potential which could be tapped to meet the country's and its neighbors' extensive electric needs. To date, offshore investment has come primarily from Canada, China, Germany, Russia, Turkey, United Kingdom and the United States. All told, more than 2,400 joint-ventures and foreign companies in Kyrgyzstan (Appendix 1 contains information on some of the larger ones) since 1991. Kyrgyzstan was one of the first former Soviet Union countries to join the World Trade Organization (1999).
Besides the mineral sector, significant investment opportunities also exist in the agricultural processing, light manufacturing and tourism industries.
Kyrgyzstan's business attractions include:
Kyrgyz Embassies, Consulates and Representations can provide additional information. They are: Austria, Belarus, Belgium, China, Germany, India, Iran, Kazakhstan, Malaysia, Russia, Switzerland, Turkey, Ukraine, United Arab Emirates, the United Kingdom and the United States. Belarus, China, Germany, Iran, India, Kazakhstan, Pakistan, Russia, Turkey, and the United States as well as the World Bank, IMF, UNDP, UNESCO, OSCE, EBRD, ADB and donor agencies of the Denmark, European Union, Japan, Germany and Switzerland and the U.S. All maintain offices in Bishkek.
Local banks can be a source of financial information as can Pangaea Partners. Since 1994, Pangaea has been involved in a variety of banking projects in the country including the management, together with Credit Commercial de France, of a $15 million fund for extending loans to local enterprises.
Appendix 1: Major Foreign Investments in Kyrgyzstan
Food and Beverage
1. Efes Pilsen (Turkey), Coca Cola and a local Kyrgyz mining concern, Kyrgyzmetal State Joint Stock Company, have formed a joint-venture ("JV") to produce soft-drinks at a bottling and distribution plant (commissioned in 1996 with production capacity of 39 million litres per year). The Coca-Cola Company owns 10% of the company with USD 16.2 million paid-in capital.
2. Reemtsma-Kyrgyzstan (German cigarette manufacturer). In 1998, a joint venture agreement was signed with the state-owned company, where the German partner took up 70 percent of the capital of the enterprise, which is designed to meet Kyrgyzstan's entire annual demand for cigarettes, presently estimated at 7 billion.
Manufacturing
1. In 1999 the Siemens group (Germany) bought a 67.64 percent share in the state-owned cement and slate producer, Kant Cement, for USD 5 million. Over the next four years it will invest USD 15 million to reconstruct and modernize the plant. It is also giving USD 1.5 million to help develop infrastructure in the town of Kant.
2. Cameo Corporation (UK) owns a controlling stake in Kasiet (woolen yarn producer), and intends to increase production to 3,500 tons a year. The company is also planning to diversify its activities in the country.
Mining
1. In 2000 the Kyrgyz Industrial and Credit Bank started operations as a long-term industrial financing institution. KICB with a capial of USD 7.5 million was established between the Aga-Khan Foundation (30%), EBRD (20%), IFC (20%), DEG (20%) and Kyrgyz government (10%). The other foreign banks operating inKyrgyzstan are: Demir-Kyrgyz (established by Turkish Demir Bank with assistance from Pangaea, EBRD, IFC and FMO), the Bank of Asia (owned by individuals from South Korea) and the National Bank of Pakistan.
2. The Kumtor Mine in Kyrgyzstan produces 6% of the GDP of the country. Kumtor Mine is operated by the Kumtor Gold Company, owned one-third by a Canadian firm, Cameco, and two-thirds by the Kyrgyz State Property Fund. It employs almost 1,500 people and mdma came into production in 1997 at a cost of $450 million US (Chase Manhattan Bank is leading a commercial consortium to invest up to $120 million in the project. The EBRD and World Bank provided another $130 million). In 1999, Cameco produced 610,500 ounces of gold, and is expected to increase production up to 700,000 in 2001.
3. In January 2000 a new joint venture company, Talas Gold, between Kyrgyzaltyn, the state-owned gold monopoly, and the British Norox Mining company, was formed to exploit the estimated recoverable gold deposits of 65 tons in Jerooy, a mountainous area in Talas region. Norox, itself a joint venture between Australia's Normandy Mining and the British Oxus Resources Corporation, is to own 66.67 percent in the new company, and the remainder will be held by Kyrgyzaltyn. The project is seeking an investment of up to USD 120 million, and the output is forecasted at between 5 - 5.5 tons annually.
4. Kyrgyz Petroleum Company operates oil refinery in Dzhalal-Abad region in the south of Kyrgyzstan. The KPC refindery was built in 1997 as a joint venture between Kyrgyzneftegaz, the country's state-owned oil company, and Kyrgoil - a Canadian company - which invested USD 29 million in the project. In June 2000 Kyrgoil sold its share to Petrofac Resources International Ltd. (UK). The 10,000-bbl/d-capacity refinery produces heavy fuel, diesel, and gasoline.