The Kyrgyz Republic remains a frontier market oriented towards higher-risk investors, but the government under President Sadyr Japarov has expressed its desire to attract greater, more diversified foreign direct investment (FDI) and to develop a green economy to contribute to sustainable economic growth. In 2021, the President traveled extensively to seek investment partners in different regions, and government officials attended several trade and investment expositions in the region and beyond. While the official attitude toward FDI is positive and by law there are no limits on foreign ownership or control, in practice foreign investors may be subject to greater scrutiny than domestic investors, and the country’s capacity to provide a sound enabling environment for investment still faces many challenges. The legal framework for foreign investment mostly corresponds to international standards, but enforcement of these laws and private property rights is weak, and criminal investigations of commercial disputes is not uncommon.
Mining has historically been the industry that attracted the most FDI to the Kyrgyz Republic but a dispute with its largest foreign investor may have damaged investor appetite for this sector. In May 2021, the Kyrgyz government raided the offices of Kumtor Gold Company, a local subsidiary of Canadian mining company Centerra Gold, and fined the Canadian firm $3 billion for alleged environmental damages caused by running the Kumtor gold mine. The national government subsequently took over the mine and pursued Centerra Gold for corruption, criminal violations, and environmental damage in national and international courts. In September 2021, the London Bullion Market Association suspended Kyrgyzaltyn, the state gold refiner, from its Good Delivery List over issues concerning delivery and the potential for fraud, while the sale of Kyrgyz gold still suffers transparency issues. With the creation of the “Heritage of the Great Nomads” national holding company, the government has also signaled it intends to play a greater role in the development of the mining and precious metals industries. In April 2022, the Kyrgyz government and Centerra reached a conditional agreement by which the Kyrgyz government will take full control of the mine and give up its 26 percent stake in Centerra.
Still, other growing industries have attracted both domestic and foreign investor interest, including textiles, agriculture, education, franchising, and IT. Green investment is another promising area for potential investors as the Kyrgyz government increased its commitment to fighting climate change and sustainable development. In 2021, the Kyrgyz Republic joined the Global Methane Pledge and unveiled revised Nationally Determined Contributions (NDCs), which also opened many opportunities for foreign firms seeking to invest in industries such as hydropower, energy efficiency, and methane abatement.
Additional challenges to an enabling investment climate include a weak judiciary, lack of incentives for foreign investors, and a banking system highly dependent on the Russian financial system. The local currency, the Kyrgyz som, quickly depreciated against the U.S. dollar after the Russian invasion of Ukraine in February 2022, making not only imports more expensive but contributing to a drop in value of remittances that Kyrgyz migrant workers in Russia send home, which annually comprise roughly 30 percent of Kyrgyz GDP.
*Some information in the report may be subject to change upon date of publication and will be updated in the 2022 ICS.
|TI Corruption Perceptions Index||2021||144 of 180||http://www.transparency.org/research/cpi/overview|
|Global Innovation Index||2021||98 of 132||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, historical stock positions)||2020||$29||https://apps.bea.gov/international/factsheet/|
|World Bank GNI per capita||2020||$1,160||http://data.worldbank.org/indicator/NY.GNP.PCAP.CD|
1. Openness To, and Restrictions Upon, Foreign Investment
3. Legal Regime
4. Industrial Policies
5. Protection of Property Rights
6. Financial Sector
7. State-Owned Enterprises
There are approximately 94 SOEs in the Kyrgyz Republic that play a significant role in the local economy. According to 2021 data, 65 of the 94 SOEs were not profitable. Still, SOE income managed to double only for the first nine months of 2021 to $76.4 million dollars. The State Property Management Fund of the Kyrgyz Republic (www.fgi.gov/kg) is the public executive authority representing the interests of the state. The purpose of the Fund is to ensure the efficiency of the use, management, and privatization of state property. Information on allocations to and earnings from SOEs is included in budget execution reports and is published (in Russian) by the Ministry of Finance and Economy (www.minfin.kg).
Information on SOE assets, earnings, profitability, working capital, and other financial indicators is available on the State Property Management Fund’s website (http://finance.page.kg/index.php?act=svod_profit), though the website is not actively maintained. The State Property Management Fund also reviews the budgets for the largest SOEs, while the Accounting Chamber reviews the accounts of all SOEs and publishes audit reports on their website (www.esep.kg).
The Kyrgyz Republic does not fully adhere to the OECD Guidelines on Corporate Governance of SOEs. Cronyism and corruption within SOEs are a major obstacle to the Kyrgyz Republic’s economic development. The Heritage Foundation’s 2017 Index of Economic Freedom report noted, elected officials appoint company board members based on political loyalty rather than professional skills and corporate governance knowledge. Positions on boards of directors are frequently used as rewards for political support, and the dynamic has reinforced the patronage system and resulted in poor economic performance and public service delivery. As of February 2021, the presidential decree on “State Personnel Hiring Policy” authorizes the State Personnel Service to direct all state agencies and SOEs to verify the qualifications of all candidates, including education and professional experience, as the basis for personnel appointments.
The government has attempted to improve transparency on contracts and bidding processes. Due to widespread corruption, there are common complaints that only individual government officials have access to government contracts and bidding processes. SOEs purchase goods and services from the private firms and usually place the calls for bids either on their websites or in public newspapers, as required. Private enterprises have the same access to financing as SOEs and are subject to the same tax burden. In some cases, SOEs have preferential access to land and raw materials.
8. Responsible Business Conduct
The Kyrgyz Government does not factor responsibility business conduct (RBC) policies or practices into its procurement decisions. Historically, the mining sector has been a lightning rod for public controversy concerning RBC violations. In the recent past, local residents have staged rallies to protest against small gold mining operations owned and operated by Chinese and other foreign-owned mining companies based on claims of their detrimental impact on the environment, and in 2021, the Kyrgyz government sued Centerra Gold in international court for alleged environmental violations.
Corporate social responsibility (CSR) is not a fully developed concept or practice. Most companies have not yet developed the capacity to coordinate with civil society on this level. The companies that generally demonstrate CSR are large, foreign-owned companies that participate in or lead industry-strengthening training sessions, work with local universities to develop internship programs and donate to national development projects. Many new large investors, particularly in natural resource extraction, find that there is a requirement to establish a sizeable “social development fund” as a prerequisite for doing business in the Kyrgyz Republic. Charitable donations are not tax deductible.
The Kyrgyz Republic is a member of the Extractive Industries Transparency Initiative (EITI). The online license register of the State Committee on Industry, Energy, and Subsoil Use keeps track of the number of active extractive licenses, and EITI covers more than 95 percent of mining revenues in the Kyrgyz Republic. After being suspended by the EITI in 2017, the EITI Board in September 2020, reinstated the Kyrgyz Republic citing meaningful progress in implementing the 2016 EITI Standard.
Child labor is still used in the country especially in the country’s sizeable shadow economy which includes agriculture, bazaars (transportation of goods, shoes cleaning, sales of beverages and food, etc.), service sector and construction. In 2020, the Kyrgyz Republic made minimal advancement in efforts to eliminate the worst forms of child labor, though the government lifted a regressive moratorium on business inspections on January 1, 2022. The government passed a policy package that established a National Referral Mechanism for victims of human trafficking and drafted a new National Action Plan for 2020–2024 on the Prevention and Eradication of Child Labor.
There are approximately 50 private security companies in Kyrgyz Republic. The Kyrgyz Republic is not currently a member of the Montreux Document on Private Military and Security Companies, and is not a supporter of the International Code of Conduct or Private Security Service Providers, nor a participant in the International Code of Conduct for Private Security Service Providers’ Association (ICoCA).
Corruption remains a serious problem at all levels of Kyrgyz society and in all sectors of the economy. All companies are recommended to establish internal codes of conduct, above all, to prohibit the bribery of public officials. There are laws criminalizing the giving and accepting of bribes, establishing penalties ranging from a small administrative fine to a prison sentence. However, the government’s enforcement of anti-corruption legislation has been notoriously uneven and often politically motivated.
According to Transparency International’s 2021 Corruption Perception Index, the Kyrgyz Republic ranked 144 out of 180 countries with a score of 27 out of 100 – a lower ranking than 2020 (124) and below the global average score of 43. Kyrgyz politicians and citizens alike are aware of the systemic corruption, but the problem has been difficult to fight. Moreover, many in the Kyrgyz Republic view paying of bribes as the most efficient way to receive government assistance and many, albeit indirectly, gain benefits from corrupt practices. The Kyrgyz Republic is a signatory of the UN Anticorruption Convention but is not party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Since 2020, the State Committee on National Security (GKNB) has arrested and detained dozens of public figures including former ministers and current and former members of parliament on suspicion of corruption, most of whom were released after paying a fine. In 2021, the government launched an extensive corruption investigation against former government officials involved in past deals with Centerra Gold related to the Kumtor gold mine. The investigation is ongoing. In recent years, including in 2022, anti-corruption campaigners and Kyrgyz journalists involved in investigating corruption have been subject to intimidation and physical assault, as well as detention on unrelated charges. Such incidents are rarely investigated thoroughly by law enforcement.
In October 2020, the government instituted a policy of “economic amnesty” for corruption, if the perpetrator returns stolen assets. The legality of such amnesty has been disputed by international experts, and a number of high-profile arrests have resulted in swift release following payment of fines. The government is still considering legislation to legalize illicit assets: a working group is currently developing draft laws that would allow individuals to avoid criminal liability for any assets they declare to the government, order the destruction of any financial disclosure statements filed in the past, and end publication of future financial disclosure statements.
President Japarov established the Anti-Corruption Business Council by decree in July 2021, to develop a strategy and action plan to institute government-wide policies to combat systemic corruption (still in draft form as of March 18, 2021). The President is the Chair of the Council and Nuripa Mukanova is the Secretary General. Its membership is comprised of government officials, business associations, representatives from the diplomatic community, NGOs, and development partners.
U.S. companies seeking to do business in the Kyrgyz Republic, regardless of their size, should assess the business climate in the relevant sector in which they will be operating or investing, and conduct due diligence to ensure full compliance with measures to prevent and detect corruption, including bribery. U.S. individuals and firms operating or investing in foreign markets should take the time to become familiar with the relevant anticorruption laws of both the Kyrgyz Republic and the United States in order to properly comply with them, and where appropriate, should seek the advice of legal counsel.
10. Political and Security Environment
A history of political upheaval and violent clashes with neighboring Tajikistan over disputed territory in 2021 and early 2022, perpetuate an unstable political and security landscape that negatively impacts the investment environment. Both Freedom House and the Economist Intelligence Unit dropped their ratings of the Kyrgyz Republic’s democracy in 2021, citing the now-annulled October 2020 parliamentary elections and the subsequent concentration of power within the presidency. After protests over highly flawed parliamentary elections led to the resignation of President Sooronbai Jeenbekov, Sadyr Japarov, an opposition figure imprisoned since 2017, took office amid political tumult, and was subsequently elected president in January 2021. Japarov introduced a new constitution, approved by referendum in April 2021, that has transitioned the country to a presidential system, consolidated power in the executive branch, and weakened the power of parliament. Since independence, the Kyrgyz Republic has had 5 presidents and 26 different prime ministers, and the tradition of frequent turnover in the cabinet of ministers continues today, with many ministries also reorganized in 2021.
The security environment remains unpredictable across the country. In the days following the October 2020 tumult, political instability spilled over into the commercial sector in Bishkek; following the election protests, local marauders looted and raided the offices and facilities of multiple foreign-joint venture mining enterprises. Foreign-owned extractive resources companies were targeted by local communities in 2018 and 2019, after relative calm in 2015 and 2016. Fighting between Kyrgyz and Tajik border forces broke out in April 2021 in the southwestern Batken region, leading to dozens of casualties and the forced temporary evacuation of thousands of Kyrgyz citizens. Water resources and the border demarcation remain disputed in these areas, along with disputed demarcation along portions of the Kyrgyz-Uzbek border, although the Kyrgyz and Uzbek governments reportedly reached overall agreement on border issues in 2021.Violence in these border areas has continued to flare up between border guards, sometimes involving civilians.
Foreign-affiliated companies have been subject to local protests, at times resulting in vandalism and violence. In 2019, the majority Chinese company Zhong Ji Mining suspended operations at the Solton-Sary gold mine following violent clashes with hundreds of local residents who blamed the company for environmental degradation. In December 2019, hundreds of protestors demanded local authorities of the Naryn Free Economic Trade Zone to cancel the land lease of a Chinese-Kyrgyz enterprise, resulting in the suspension of a major customs and trade logistics complex. Local populations tend to view Chinese investment projects with more scrutiny, due to perceptions that these companies’ activities degrade the environment, such as water sources.
Supporters of extremist groups such as the Islamic Movement of Uzbekistan (IMU), Al-Qaeda, and the Eastern Turkistan Islamic Movement (ETIM) remain active in Central Asia. These groups have expressed anti-U.S. sentiments and could potentially target U.S.-affiliated organizations and business interests. In August 2016, a suicide bomber, reportedly affiliated with ETIM and trained in Syria, detonated a vehicle-borne improvised explosive device inside the Chinese Embassy compound in Bishkek, located less than 200 yards from the U.S. Embassy. The attack reportedly killed the perpetrator and injured four others, in addition to causing extensive damage. The United States has cooperated with the Kyrgyz Government to improve border and internal security and efforts to return Kyrgyz citizens from conflicts in Iraq and Syria are ongoing.
11. Labor Policies and Practices
There is significant competition for skilled and educated individuals in the Kyrgyz labor market as many qualified Kyrgyz citizens find more lucrative job opportunities abroad, and the nation’s education system has largely failed to keep pace with advancing educational needs within many sectors. International organizations are generally able to employ competent staff, often bilingual in English or other languages. Youth are increasingly interested in acquiring coding and programming skills for jobs in the technology sector, and the IT industry in the Kyrgyz Republic is small but growing rapidly with an international client base. There are two unemployment rates published by the government: the official unemployment rate (of individuals officially registered with the government for social security benefits), is 3 percent, while the unemployment rated based on a national survey of households (including those not registered for social security) is 6 percent. In addition, some experts estimate true unemployment exceeds both of these figures. The women’s labor force participation rate is 39 percent. Approximately 1 million Kyrgyz citizens work abroad because of limited opportunities in the Kyrgyz Republic, with roughly 90 percent of Kyrgyz migrant workers in Russia.
The large Kyrgyz informal economy comprises an estimated 40-70 percent of the country’s GDP and employs a large number of workers including women and children. Employers in the informal sector generally perceive the formal economy as rife with red tape, corruption, and high taxes and pension contribution obligations, and remain reluctant to leave the “shadow” economy. The new tax code aims to tackle the informal economy using several mechanisms including requiring all businesses to operate with digital cash registers to capture accurate revenue and tax liability.
There are no government policies that require hiring Kyrgyz nationals, though it is often added as a condition for investment, particularly in the mining sector. There are no restrictions on employers adjusting to a fluctuating market, including the hiring and firing of workers without cause. Many private companies use temporary or contract workers. The Labor Code does not provide any special conditions in order to attract investment. Labor unions are independent and are not subject to state bodies, employers, political parties, or other unions. In practice, labor unions have been inactive on advocating and enforcing the protection of workers’ rights.
Workers have the right to form and join trade unions. The law allows unions to conduct their activities without interference, organize, and bargain collectively. Workers may strike, but the requirement to receive formal approval has made striking difficult and complicated. The law prohibits government employees from striking, but the prohibition does not apply to teachers or medical professionals. The law does not prohibit retaliation against striking workers. Labor disputes are settled by a Commission for Labor Disputes (established within all organizations with 10 or more employees), by the authorized state body, or by courts of the Kyrgyz Republic. The employee has the right to choose one of these bodies to settle the dispute. In 2021, Parliament repeatedly approved a controversial bill that would have required all trade unions to be affiliated with the government sanctioned Federation of Trade Union, but the President vetoed the proposed law each time. Had it passed, the bill would have violated the principle of “freedom of association” enshrined in international labor rights, and the principle of independence of trade union organizations.
Safety and health conditions in factories are generally poor and weakly enforced by the government. Workers in the informal economy have neither legal protection nor mandated safety standards. The law establishes occupational health and safety standards, and the Ministry of Labor, Social Development, and Migration is responsible for protecting workers and carrying out inspections in the event that worker safety and well-being is compromised. The three-year moratorium on business inspections expired January 1, 2022.
The Labor Code of the country complies with all required international laws and treaties, but gaps remain in protecting the rights of individuals employed by private companies. Many employees are hired based on basic or even oral agreements and lack knowledge of their rights.
In January 2017, amendments to the Labor Code of the Kyrgyz Republic entered into force that strengthened labor rights and protections for people under the age of 18 and in 2020 the government adopted a revised list of hazardous work prohibited for children under age 18. However, child labor laws are not uniformly enforced.
The U.S. Embassy is unaware of the Kyrgyz government’s efforts to implement OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas or OECD or UN Guiding Principles on Business and Human Rights.
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)||2020||$7.240||2020||$7,736||https://www.worldbank.org/en/country/kyrgyzrepublic|
|Foreign Direct Investment||Host Country Statistical source*||USG or international statistical source||USG or international Source of data: BEA; IMF; Eurostat; UNCTAD, Other|
|U.S. FDI in partner country ($M USD, stock positions)||2020||$6.4||2020||$29||BEA data available at https://apps.bea.gov/international/factsheet/|
|Host country’s FDI in the United States ($M USD, stock positions)||2020||$1.7||2020||$0||BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data|
|Total inbound stock of FDI as % host GDP||N/A||N/A||2020||-4.5%||UNCTAD data available at|
*Source for Host Country Data: National Statistics Committee of the Kyrgyz Republic: http://www.stat.kg; http://www.stat.kg/ru/opendata/category/2315/; http://www.stat.kg/ru/opendata/category/4428/; http://www.stat.kg/ru/statistics/investicii/
|Direct Investment from/in Counterpart Economy Data|
|From Top Five Sources/To Top Five Destinations (US Dollars, Millions)|
|Inward Direct Investment||Outward Direct Investment|
|Total Inward||$5,412||100%||Total Outward||$897||100%|
|“0” reflects amounts rounded to +/- USD 500,000.|
Host country data differs from IMF data due to differing methodologies. According to host country data, total inward FDI in 2020 amounted to 537.4 million USD. In 2020 the incoming FDI from Canada was 154 million USD and from China is 136 million USD, according to the Kyrgyz National Statistical Committee. The total outward FDI was 939 million USD, according to the Kyrgyz National Statistical Committee; however, outward FDI to Canada reached 6 million USD and to China 592 million USD according to National Statistical Committee in 2020.
14. Contact for More Information
U.S. Embassy in the Kyrgyz Republic
171 Prospekt Mira
Bishkek, Kyrgyz Republic 720016