1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
The Kyrgyz Republic is open to foreign direct investment and the government publicly recognizes that foreign direct investment is an important component to economic development. While the government has implemented laws to entice foreign investment, application of these laws, however, inconsistent application and onerous bureaucracy continue to deter foreign investors. In particular, government activities, including demands for renegotiation of operating contracts, invasive and time-consuming audits, levies of large retroactive fines, and disputes over licenses, pose significant impediments to attracting foreign investment.
Since 1993, the United States has a bilateral investment treaty with the Kyrgyz Republic that encourages and offers reciprocal protection of investment. The Kyrgyz Republic has an Investment and Trade Promotion and Protection Agency of the Kyrgyz Republic under the Ministry of Economy (IPPA). The IPPA serves as a vehicle for maintaining an ongoing dialogue with foreign investors and advocates for investing in the Kyrgyz Republic. The agency participates in the development and implementation of measures to attract and stimulate investment activity. Its mandate is to coordinate with state bodies, local municipalities, business entities, and non-state actors to promote investment and support investors in the Kyrgyz Republic, including private investment and public-private partnerships, as well as assist local exporters to promote Kyrgyz goods to external markets, and develop Free Economic Zones (FEZ). The IPPA has investor support programs to help guide investors through the registration process and conducts outreach aimed at helping create an environment conducive to foreign investment. The IPPA often coordinates with international donor organizations on hosting round- tables discussions, exchanges, and capacity building workshops in the field of economic development.
In August 2019, the Supervisory Board of the Institute of the Business Ombudsman appointed former UK Ambassador to the Kyrgyz Republic, Robin Ord-Smith, as Business Ombudsman. The Institute of Business Ombudsman was created in January 2019 is a non-state body, funded by external donor sources, to protect the rights, freedoms and legitimate interests of business entities, both local and foreign. The selection of a foreigner to head the Institute sends a positive signal to business associations and foreign investors of the country’s commitment to improving transparency mechanisms for regulating business activities.
The government has established several committees and councils to coordinate cooperation between the business associations and government bodies. Since 2017, the Business and Entrepreneurship Development Council regularly convenes MPs, business community representatives from various sectors of the economy to discuss measures to improve the investment, promotion of entrepreneurship, and legislation to facilitate doing business in the Kyrgyz Republic. The Committee on Development of Industry and Entrepreneurship under the President of the Kyrgyz Republic serves as a platform for entrepreneurs to turn to in case if their grievances are not addressed by the government. The respective presidential decree to establish the Committee under the National Council on Sustainable Development of the Kyrgyz Republic was signed on December 24, 2019 with the Provisions and the following amendment to include Vice-Prime-Minister on economic development, Business Ombudsman and heads of business associations. Once this structure fully launches, there will be platforms to raise investment climate and other business concerns at the offices of the President, Parliament and Prime Minister. The Kyrgyz government also interacts with the business community via a number of local associations that serve as a voice for entrepreneurs and corporations, including the American Chamber of Commerce in the Kyrgyz Republic (AmCham), and the International Business Council (IBC), among others. The Ministry of Economy, Parliamentary Business and Entrepreneurship Development Council, and other government bodies often seek the opinion of these associations during the formulation of policy.
Limits on Foreign Control and Right to Private Ownership and Establishment
While there are still no official limits on foreign control, a large investor in a politically sensitive industry may find that the government imposes investor-specific requirements such as a high percentage of local workforce employment or a minimum number of local seats on a board of directors. Foreigners have the right to establish and own businesses, and there have been no allegations on market access restrictions from U.S. investors since 2016.
By law, the Kyrgyz Republic guarantees equal treatment to investors and places no limit on foreign ownership or control. In the last two years, there were no known cases of sector-specific restrictions, limitations or requirements applied to foreign ownership and control. In April 2017, amendments to the “Law on Mass Media” to limit foreign ownership of television (excluding radio and print media) broadcasters to 35 percent, was signed by the President and entered into force in June 2017.
Post is unaware of any formal investment screening processes in the Kyrgyz Republic.
Other Investment Policy Reviews
In 2016, the International Finance Corporation (IFC), a member of the World Bank Group, released a report on the Kyrgyz investment climate in January 2016. The report is available at: https://documents.worldbank.org/en/publication/documents-reports/documentdetail/259411467997285741/investment-climate-in-kyrgyz-republic-views-of-foreign-investors-results-of-the-survey-of-foreign-investors-operating-and-non-operating here. The Investment Policy Review (IPR) of The Kyrgyz Republic for 2016 by UNCTAD is available at https://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=1436 .
Starting a business in the Kyrgyz Republic has become easier in the elimination of the minimum capital requirement for business registration, abolishment of certain registration fees, and reduced registration time. The Kyrgyz Republic does not have a business registration website. Registration of legal entities, branches, or representative offices in the Kyrgyz Republic is based on “registration by notification” and the “one stop-shop” practice. State registration of a legal entity is completed within three business days from the date of filing the necessary documents for a specified fee. The Kyrgyz Republic ranked in the top quintile of the World Bank’s 2019 Doing Business report (42nd out of 190 countries surveyed) in “Starting a Business.” From May 2, 2018 to May 1, 2019, 115 economies implemented 294 business regulatory reforms across the 10 areas measured by Doing Business.
Post is not aware of host government efforts to promote outward investment from the Kyrgyz Republic, nor of any instances in which the government sought to restrict domestic investors from investing abroad.
6. Financial Sector
Capital Markets and Portfolio Investment
The Kyrgyz government is generally open toward foreign portfolio investment, though experts from international financial institutions (IFIs) have noted that capital markets in the Kyrgyz Republic remain underdeveloped. The economy of the Kyrgyz Republic is primarily cash-based, although non-cash consumer transactions, such as debit cards and transaction machines, have quadrupled in the last five years. In 2019, Moody’s Investors Services assigned the Kyrgyz Republic a sovereign credit rating of B2. The government debt market is small and limited to short maturities, though Kyrgyz bonds are available for foreign ownership. Broadly, credit is allocated on market terms, but experts have noted that the presence of the Russian-Kyrgyz Development Fund subsidized sources of credit have introduced market distortions. Bank loans remain the primary source of private sector credit, and local portfolio investors often highlight the need to develop additional financial instruments in the Kyrgyz Republic.
There are two stock exchanges in the Kyrgyz Republic (Kyrgyz Stock Exchange and Stock Exchange The Kyrgyz Republic), but all transactions are conducted through the Kyrgyz Stock Exchange. In 2019, the total value of transactions amounted to USD 6.1 billion Kyrgyz soms (approximately USD 87 billion). The small market lacks sufficient liquidity to enter and exit sizeable positions. Since 1995, the Kyrgyz Republic has accepted IMF Article VIII obligations. Foreign investors are able to acquire loans on the local market if the business is operating on the territory of the Kyrgyz Republic and collateral meets the requirements of local banks. The average interest rate for loans in USD is between 10-15 percent.
Money and Banking System
The National Bank of the Kyrgyz Republic (NBKR) is a nominally independent body whose mandate is to achieve and maintain price stability through monetary policy. The Bank is also tasked with maintaining the safety and reliability of the banking and payment systems. The NBKR licenses, regulates, and supervises credit institutions. The penetration level of the banking sector is 42 percent.
According to the IMF, the Kyrgyz banking system at present remains well capitalized with still sizeable, non-performing loans (NPLs). NPLs increased from 7.5 percent to 8.0 percent in 2019, with restructured loans in excess of 20 percent. Net capital adequacy ratio increased from 23.7 percent to 24.0 percent in 2019. Total assets in the Kyrgyz banking system in 2019 equaled approximately USD 3.6 billion. As of August 2019, the Kyrgyz Republic’s three largest banks by total assets were Kyrgyz Investment and Credit Bank (KICB; approximately USD 418 million), Optima Bank (approximately USD 520.7 million), and Aiyl Bank (approximately USD 434.5 million).
There are currently 23 commercial banks in the Kyrgyz Republic, with 323 operating branches throughout the country; the five largest banks comprise 51.7 percent of the total market. No U.S. bank operates in the Kyrgyz Republic and Kyrgyz banks do not maintain correspondent accounts from U.S. financial institutions. There are eight foreign banks operating in the Kyrgyz Republic: Demir Bank, National Bank of Pakistan, Halyk Bank, Optima Bank, Finca Bank, and Kompanion Bank are entirely foreign held. Other banks are partially foreign held, including KICB and BTA Bank, Kyrgyz-Swiss Bank. KICB has multinational organizations as shareholders including the European Bank for Reconstruction and Development (EBRD), Economic Finance Corporation, the Aga Khan Fund for Economic Development and others.
The micro-finance sector in the Kyrgyz Republic is robust, representing nearly 10 percent the market size of the banking sector. Trade accounted for 25.4 percent of the total loan portfolio of the banking sector, followed by agriculture (18.9 percent) and consumer loans (11.7 percent). The microfinance sector in the Kyrgyz Republic is rapidly growing. In 2019, around 140 microfinance companies, 95 credit unions, 220 pawnshops and 401 currency exchange offices operated in the Kyrgyz Republic. Over the last four years, the three largest microfinance companies (Bai-Tushum, FINCA, and Kompanion) transformed into banks with full banking licenses.
Foreign Exchange and Remittances
Foreign exchange is widely available and rates are competitive. The local currency, the Kyrgyz som, is freely convertible and stable compared to other currencies in the region. While the som is a floating currency, the NBKR periodically intervenes in the market to mitigate the risk of exchange rate shocks. Given significant currency fluctuations among Post-Soviet countries in 2019, the Kyrgyz som was one of the most stable currencies, with the dollar exchange rate dropping 0.3 percent over the year. In 2019, the NBKR conducted six foreign exchange interventions and in total, sold USD 143.5 million. The NBKR conducts weekly inter-bank currency auctions, in which competitive bids determine market-based transaction prices. Banks usually clear payments within a single business day. Complaints of currency conversion issues are rare. With occasional exceptions in the agricultural and energy sectors, barter transactions have largely been phased out.
Remittances typically account for 25-30 percent of GDP. In 2019 net remittances reached $1.8 billion, a 16 percent reduction from 2018. In July 2019, the Central Bank of Russia lowered the cap on money transfers per month to the Kyrgyz Republic to 100,000 rubles (approximately USD 1,590 based on July exchange rates). The Financial Action Task Force (FATF) assessed that in 2019, the Kyrgyz Republic made “significant progress in addressing technical compliance deficiencies to combat money laundering and financial crimes.”
Sovereign Wealth Funds
The Kyrgyz Republic’s Sovereign Wealth Fund originated from proceeds of the Kumtor gold mine and is composed of shares in the parent company of the gold mine operator, Centerra Gold. The Kyrgyz Republic owns roughly 77.4 million shares of the company, which are currently valued at USD 404 million.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
|Host Country Statistical source*||USG or international statistical source||USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
|Host Country Gross Domestic Product (GDP) ($M USD)||2019||$8,453||2018||$8,093||www.worldbank.org/en/country|
|Foreign Direct Investment||Host Country Statistical source*||USG or international statistical source||USG or international Source of data:
BEA; IMF; Eurostat; UNCTAD, Other
|U.S. FDI in partner country ($M USD, stock positions)||2019||5.5||2018||27||BEA data available at
|Host country’s FDI in the United States ($M USD, stock positions)||2019||1.5||2018||0||BEA data available at
|Total inbound stock of FDI as % host GDP||N/A||N/A||2018||48.4||UNCTAD data available at
*Source for Host Country Data: National Statistics Committee of the Kyrgyz Republic; http://www.stat.kg
|Direct Investment from/in Counterpart Economy Data|
|From Top Five Sources/To Top Five Destinations (2018, US Dollars, Millions)|
|Inward Direct Investment||Outward Direct Investment|
|Total Inward||4915||100%||Total Outward||11||100%|
|United Kingdom||333||7%||Russian Federation||1||11%|
|“0” reflects amounts rounded to +/- USD 500,000.|
Table 4: Sources of Portfolio Investment
Data not available. The Kyrgyz Republic has limited stock and bond markets for portfolio investors. The country is not listed on the IMF’s Coordinated Portfolio Investment Survey (CPIS) site. It is unlikely the country has any large portfolio investors.