Policies Towards Foreign Direct Investment

The Kyrgyz Republic is actively seeking 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 attract foreign investment, inconsistent application, onerous bureaucracy as well as inability to protect investors’ assets in the field 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. Pandemic uncertainty coupled with political tumult has had an outsized negative impact in the country and net FDI inflows in 2020 collapsed by over 50 percent relative to 2019.  This includes a notable reduction in FDI inflows from all main investment partners, Canada, China, Russia, and the United Kingdom.

Since 1993, the United States has had a Bilateral Investment Treaty with the Kyrgyz Republic that encourages and offers reciprocal protection of investment. The newly restructured Investment Promotion and Protection Agency (IPPA) of the Kyrgyz Republic (as of February 2021), under the Ministry of Economy and Finance, 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.

The Institute of the Business Ombudsman was created in January 2019 as an independent non-state body, funded by external donor sources, to protect the rights, freedoms, and legitimate interests of business entities, both local and foreign. 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 has concluded memorandums of cooperation with leading international business associations, including the American Chamber of Commerce in the Kyrgyz Republic (Amcham), International Business Council (IBC), and the Chamber of Commerce of Industry of the Kyrgyz Republic (CCI). In 2020, the Business Ombudsman recommended that business reform, protection and support of local entrepreneurs and protecting private property rights are key conditions for attracting direct investment.

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 under the Speaker of the Parliament 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 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 amendment to designate to the Vice-Prime-Minister for economic development, the Business Ombudsman and heads of business associations. The committee includes platforms to raise investment climate and other business concerns to 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 Amcham, IBC, and the National Alliance of Business Associations of the Kyrgyz Republic (http://caa.kg/ru/ru-naba/). The Ministry of Economy and Finance, 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 of 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.

Business Facilitation

Starting a business in the Kyrgyz Republic has become easier following the elimination of the minimum capital requirement for business registration, abolition of certain registration fees, and decreases in registration times. 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 2020 Doing Business report (42nd out of 190 countries surveyed) in “Starting a Business.” In 2018-2019, 115 economies implemented 294 business regulatory reforms across the 10 areas measured by Doing Business ( https://www.doingbusiness.org/en/reforms/top-reformers-2020).

Outward Investment

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.

The Kyrgyz Republic currently has bilateral investment treaties with the United States, Armenia, Azerbaijan, Belarus, China, Finland, France, Georgia, Germany, India, Indonesia, Iran, Kazakhstan, the Republic of Korea, Lithuania, Malaysia, Moldova, Mongolia, Pakistan, Sweden, Switzerland, Tajikistan, Turkey, United Kingdom, Ukraine, and Uzbekistan.

The U.S.-Kyrgyz Republic Bilateral Investment Treaty entered into force in 1994. Since 1993, the Kyrgyz Republic has been a beneficiary of the U.S. Generalized System of Preferences (GSP) program, enabling the country to export approximately 3,500 products duty-free to the United States. These include most manufactured items; inputs used in manufacturing; jewelry; many types of carpets; certain agricultural and fishery products; and, many types of chemicals, minerals and marble.

In June 2004, the Kyrgyz Republic signed a Trade and Investment Framework Agreement (TIFA) with the United States, Kazakhstan, Tajikistan, Turkmenistan, and Uzbekistan. The objective of the TIFA is to provide a forum for addressing trade issues and enhancing trade and investment between the United States and Central Asia. The TIFA also provides a platform to address regional trade issues that hamper intra-regional trade, economic development and investment. The TIFA creates a United States-Central Asia Council on Trade and Investment, which is designed to consider a wide range of issues that include, but are not limited to, intellectual property, labor rights, environmental issues and enhancing the participation of small- and medium-sized enterprises in trade and investment.

In August 2015, the Kyrgyz Republic fully acceded to the Eurasian Economic Union (EAEU), joining Russia, Belarus, Kazakhstan, and Armenia in the trade bloc giving access to 180 million population market. Though regulations are still being harmonized, free movement of labor, capital, and goods forms the basis of the EAEU.

The U.S.-U.S.S.R. treaty on double taxation, which was signed in 1973, remains in effect between the U.S. and the Kyrgyz Republic. The Kyrgyz Republic has also signed double taxation treaties with Armenia, Austria, Belarus, Canada, China, Finland, Germany, India, Iran, Kazakhstan, Lithuania, Malaysia, Moldova, Mongolia, Pakistan, Poland, Russia, Switzerland, Tajikistan, Turkey, Ukraine, and Uzbekistan.

Transparency of the Regulatory System

The legal and regulatory system of the Kyrgyz Republic remains underdeveloped, and implementation regulations and court orders relating to commercial transactions remain inconsistent with international practices. Heavy bureaucracy, lack of accessibility among decision-makers responsible for investment promotion, and frequent changes in leadership due to political instability all undermine investor confidence. Moreover, there is a significant capacity gap between the capital (Bishkek) and regional municipalities, particularly in remote, rural areas, in terms of institutional legal expertise andlocal officials and local law enforcement capacity, which hinders the conduct of business especially in the regions of Kyrgyzstan.

There have been no known cases of U.S. investors facing discrimination.

Rule-making authority is vested in the Kyrgyz Parliament – Jogorku Kenesh, which has established robust committees that oversees legislation and regulations affecting several areas of the economy, including: the Committee on Economic and Fiscal Policy; the Committee on Fuel, Energy, and Subsoil Management; the Committee on Transport, Communications, Architecture, and Construction; and the Committee on Budget and Finance. The Office of the Prosecutor General is the supreme legal and regulatory enforcement body in the Kyrgyz Republic. The State Service on Financial Market Regulation and Supervision (Financial Supervision), the State Service on Financial (Financial Intelligence) and the State Service on Combating Economic Crimes (Financial Police), which was dissolved this year, have played important regulatory roles

Accounting procedures tend to adhere to internationally recognized accounting rules, such as the International Financial Reporting Standards (IFRS), and audits are conducted regularly, often in compliance with agreements with international financial institutions (IFIs). Audit results of state organizations tend to be publicly available, unlike those of private organizations.

There have been lapses in the public consultation process, and significant reductions in transparency of Parliamentary committee meetings and failure to circulate draft bills for public review, including the draft new constitution that will be voted on in the April 11 referendum.

Draft bills or regulations are to be posted on Parliament’s web site and open to public comment for 30 days prior to consideration by Parliament and its committees. Parliament is required by regulation to hold public hearings on draft legislation, and has historically been open to the participation of representatives of civil society organizations and the business community in relevant hearings when held.

The IPPA assists investors with regulatory compliance. However, the efficacy of this office in assisting firms with setting up shop is limited since official bureaucratic procedures comprise only some of the hurdles to opening a business. Investment councils, under the auspices of the Office of the President, Parliament and Prime-Minister respectively, exist to further regulatory improvements for the business climate. Contradictory government decrees often create bureaucratic paralysis or opportunities for bribe solicitation in order to complete normal bureaucratic functions. As often in the Kyrgyz Republic, the legal and regulatory framework is largely sound, but implementation and enforcement are weak.

In February 2021, the government structure underwent “optimization,” which resulted in the significant downsizing of ministries and the dissolution and re-organization of several independent state regulatory bodies. The State Committee for Industry, Energy and Subsoil Use is under the supervision of the Ministry of Energy and Industry and, among its core functions, oversees mining licensing. The State Committee of Information and Communications Technology, responsible for implementation of the Digital Transformation Strategy 2019-2023 was dissolved in 2021 but will re-emerge under a new state body that is still undergoing transition. still in transition. The government also eliminated the State Service of Combating Economic Crimes (Financial Police) and will transfer its authority to investigate economic crimes to a new state body within the combined Ministry of Finance and Economy.

International Regulatory Considerations

In August 2015, the Kyrgyz Republic acceded to the Eurasian Economic Union (EAEU), whose current members also include Russia, Kazakhstan, Armenia, and Belarus. The Kyrgyz Republic continues to harmonize its laws to comply with regulations set by the Eurasian Economic Commission, the executive body of the EAEU. However, the Kyrgyz Republic has yet to secure the benefits of increased bilateral trade with EAEU member countries, citing unilaterally imposed trade barriers restricting the flow of Kyrgyz exports. Numerous Kyrgyz entrepreneurs have criticized non-tariff measures that emerged after the country’s accession to the Union, preventing local exporters from fully accessing the wider EAEU market.

The United States and other international partners provided substantial technical assistance to the Kyrgyz Republic in support of its accession to the WTO in 1998, and the country’s regulatory system reflects many international norms and best practices. The Law on the Fundamentals of Technical Regulation in the Kyrgyz Republic, which provides for standardization principles under the WTO Technical Barriers to Trade Agreement, entered into force in 2004. To Post’s knowledge, the Kyrgyz government notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT). In 2016, the Kyrgyz Republic ratified the WTO Trade Facilitation Agreement.

Legal System and Judicial Independence

The government’s self-stated principles of the reformed legal system of the Kyrgyz Republic are “ideological and political pluralism, a socially oriented market economy, and the expansion of individual rights and freedoms.” Major barriers to foreign investment stem largely from a lack of adequate implementation rather than gaps in existing laws.

The judicial system is technically independent, but political interference and corruption regularly besmirch its reputation and undermine its effectiveness. Resolution of investment disputes within the Kyrgyz Republic depends on several factors, including who the parties are and the amount of investment.

The weak Kyrgyz judicial system often fails to act as an independent arbiter in the resolution of disputes. Since most disputes are lodged by foreign investors against the Kyrgyz Government, local courts often serve as an executor of the authorities’ political agenda. Regulations and enforcement actions can be appealed and are adjudicated in the national court system. International Court of Arbitration at the Chamber of Commerce and Industry of the Kyrgyz Republic (ICA)^.and the Central Asian Alternative Dispute Resolution Center provide mediation services for public-private disputes, which remain a protracted and often impartial process in the Kyrgyz Republic.

Laws and Regulations on Foreign Direct Investment

The Kyrgyz Republic’s main legal framework for foreign direct investment remains
the “2003 Law on Investments,” including multiple amendments up until December 2020 (http://cbd.minjust.gov.kg/act/view/ru-ru/1190). The justice system in the Kyrgyz Republic is inefficient and lacks independence, and cases can take years to be resolved. The Kyrgyz Republic does not have a business registration website. The Investment Promotion and Protection Agency of the Kyrgyz Republic (IPPA) maintains the country’s main website for investment queries, https://invest.gov.kg/.

Competition and Antitrust Laws

The State Agency for Anti-Monopoly Regulation of the Kyrgyz Republic conducts unified state antitrust price regulation in the economy. The main tasks of the State Agency are to develop and protect competition, to control compliance with legislation in the field of anti-trust, price regulation, to protect the legal rights of consumers against manifestations of monopoly and unfair competition, to ensure observance of legislation on advertising. To Post’s knowledge, there have been no developments in any significant competition cases over the past year.

Expropriation and Compensation

According to the Law on Investments in the Kyrgyz Republic, investments shall not be subject to expropriation, except as provided by Kyrgyz laws when such expropriation is in the public interests and is carried out on a non-discriminatory basis and pursuant to a proper legal procedure with the payment of timely, appropriate, and feasible reparation of damages (including lost profit).

Foreign investors have the right to compensation in the case of government seizure of assets. However, there is little understanding of the distinction between historical book value, replacement value, and actual market value, which brings into question whether the government would provide fair compensation in the event of expropriation. In the mining sector, there is a long history of investment disputes related to government seizure, revocation, or suspension of mining licenses. In May 2021, the Canadian mining company Centerra Gold Inc., the parent company of the subsidiary Kumtor Gold Company, initiated binding arbitration proceedings against the Kyrgyz government, following the government’s ownership takeover of the Kumtor gold mine and levying of a $3 billion fine against the company for alleged environmental damages. Arbitration proceedings remain ongoing.

In April 2016, the government expropriated four Uzbek-owned resorts on Lake Issyk-Kul on the grounds of the claimant’s failure to make payment to the Kyrgyz Social Fund. Post has no information on whether fair market value compensation was offered following expropriation. (The Kyrgyz Law on Investment specifies that the amount of reparation shall be equivalent to the fair market price of the expropriated investment, and that the reparation must be feasible and shall be payable in a freely convertible currency within the term agreed on by the parties.) In December 2017, the Kyrgyz Government returned the resorts to the claimant and extended the temporary rental of the lands on the basis that the claimant withdrew its claim filed to international arbitration, improved infrastructure at the resorts, and guaranteed that 80 percent of labor force will be Kyrgyz citizens.

Dispute Settlement

ICSID Convention and New York Convention

The Kyrgyz Republic is a member of the International Center for the Settlement of Investment Disputes (ICSID). It signed the ICSID agreement on June 9, 1995, and ratified it on July 5, 1997. The Kyrgyz Republic became a member of the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards on March 18, 1997.

Investor-State Dispute Settlement

The Code of Arbitration Procedure specifies that, if an international treaty of the Kyrgyz Republic establishes the rules of court procedure, other than those, provided by the legislation of the Kyrgyz Republic, rules of the international treaty shall apply. The U.S.-Kyrgyz BIT outlines procedures by which parties may consent to binding arbitration.

Post is unaware of any claims made by U.S. investors under the agreement since it entered into force. Between 2014 and 2018, twenty lawsuits were filed against the Kyrgyz Republic totaling over $2.2 billion in claims. Eleven international arbitration disputes totaling over $1.5 billion in claims have been awarded as of 2020.

The Kyrgyz government has a history of disputing UNCITRAL and other foreign arbitral awards in favor of the claimant. In a pending case in which a D.C. federal court has issued a default ruling enforcing the award, the Kyrgyz Republic has failed to appear for court appearances. The company has yet to receive compensation, and the Kyrgyz government has sought to undo this ruling.

International Commercial Arbitration and Foreign Courts

Code of Arbitration Procedures allows for international and domestic arbitration of disputes. Parties can agree to any judicial institution, including third-party courts within or outside of the Kyrgyz Republic, or domestic or international arbitration. If the parties fail to settle the dispute within three months of the date of the first written request, any investment dispute between an investor and the public authorities of the Kyrgyz Republic will be subject to settlement by the judicial bodies of the Kyrgyz Republic. Any of the parties may initiate a settlement by recourse to: the International Centre for Settlement of Investment Disputes under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States or; arbitration or a provisional international arbitration tribunal (commercial court) established under the arbitration procedures of the UNCITRAL. Recognition and enforcement of international arbitration awards in the Kyrgyz Republic is carried out in accordance with the New York Convention and Kyrgyz laws. However, there are a number of features related to the recognition and enforcement of arbitration awards. In particular, Kyrgyz law expands a list of the grounds for refusal of recognition and enforcement of foreign arbitration awards in comparison with a list of the grounds referred to in the New York Convention.

Bankruptcy Regulations

The Kyrgyz Republic has a written law governing bankruptcy procedures of legal persons and insolvent physical persons (Law of the Kyrgyz Republic “On Bankruptcy” September 22, 1997 with multiple amendments in December 30, 1998, July 1999, September 2000, June 2002, March and August 2005, January and July 2006, June 2007, July 2009, April 2015, June, July and December 2016, May 2017, and December 31, 2019), which covers industrial enterprises and banks, irrespective of the type of ownership, commercial companies, private entrepreneurs, or foreign commercial entities. Bankruptcy proceedings are conducted by the court of arbitration competent for the district in which enterprise is located. The procedure of liquidation can be carried out without the involvement of the judicial bodies if all creditors agree on out-of-court proceedings. Chapter 10 of the law on bankruptcy provides for the possibility of an amicable or peaceful settlement between the enterprise and its creditors, which can be made at any stage of the liquidation process. The World Bank ranked the Kyrgyz Republic 78 out of 190 countries in “Resolving Insolvency” in its 2020 Doing Business report.

Investment Incentives

The Kyrgyz Government has reduced the tax burden on repatriation of profits by foreign investors to conform to the tax rate for domestic investors. The Ministry of Economy and IPPA often express the government’s willingness to discuss potential incentives, including access to land, with specific foreign investors. To attract investment in the IT sector, the Kyrgyz government has created a “zero-tax zone” at the High Technology Park of the Kyrgyz Republic, which waives tax burden for companies in which 80 percent of total products and services are exported.

Foreign Trade Zones/Free Ports/Trade Facilitation

There are five Free Economic Zones (FEZs) in the Kyrgyz Republic: Bishkek, Naryn, Karakol (Issyk-Kul province), Leylek (Batken province) and Maimak (Talas province). Each is situated to make use of transportation infrastructure and/or customs posts along the Kyrgyz borders. Government incentives for investment in the zones include exemption from several taxes, duties and payments, simplified customs procedures, and direct access to utility suppliers. The production and sale of petroleum, liquor, and tobacco products in FEZs are banned. Additional information on FEZs can be found at https://invest.gov.kg/free-economic-zones/.

Performance and Data Localization Requirements

While there are no formal legal requirements for local employment, most major international investors are subject to tremendous public pressure to support threshold local employment, particularly in the mining and construction sectors. New investors may find local employment quotas included in potential investment agreements, mandating numbers for boards of directors, senior management, and/or other employees. The Kyrgyz Government does not enforce any “forced localization” policies. There are no known government/authority-imposed conditions on permission to invest. The U.S.-Kyrgyz Bilateral Investment Treaty ensures that investments are guaranteed freedom from performance requirements, including requirements to use local products or to exports local goods. Foreign investors may freely transmit customer or other business-related data outside the country’s territory upon their own need as long as it does not contradict with local law on investments.

There are no known instances of requiring foreign IT providers to turn over source code and/or provide access to encryption. There is no legislation on maintaining data storage within the country.

Real Property

Inviolability of property rights is written in the Kyrgyz Constitution and the Civil Code. In the National Development Strategy for 2018-2040, the Kyrgyz Government identified property rights as one of the priority areas for strengthening investment climate in the Kyrgyz Republic. The Kyrgyz Republic was first among its neighboring Central Asian states to introduce private property rights for land ownership. The Kyrgyz Republic is among the easiest countries in which to register property, ranking 7^th out of 190 countries (ranked 8^th in 2017, 2018 and 2019) in the World Bank’s 2020 Doing Business report.

Mortgages and liens are common in the Kyrgyz Republic and operate according to relevant legislation. The State Registration Service is the major operator of a recording system (database) on property under mortgage/lien commitments. When providing mortgages, local banks must request a reference from the State Registration Service that confirms the property is not under lien. However, several have questioned the reliability of the recording system, and the Service itself is frequently subject to allegations of corruption.

There are a number of legal restrictions on the right of foreign persons to own land in the Kyrgyz Republic. The land rights of foreign persons are limited to the following:

• Foreign persons may not own or use agricultural land.
• Foreign persons may not own or use any land except residential land, which has been foreclosed under a mortgage loan agreement in accordance with Kyrgyz Pledge Law. Foreclosed agricultural land may belong to foreign banks and specialized financial institutions but only for the period of two years (http://cbd.minjust.gov.kg/act/view/ru-ru/386).
• Foreign persons may use non-residential land transferred thereto by way of universal succession, except agricultural and mining use land, subject to permission of the Kyrgyz Government, for the period of up to 50 years.
• Foreign persons who have acquired ownership of land by way of universal succession (inheritance, reorganization) must transfer such land to a Kyrgyz national or legal entity within one year from the date of acquiring such ownership.

Intellectual Property Rights

The Kyrgyz Republic has robust legislation protecting intellectual property (IP)  and the country is a signatory to several IP related international treaties; enforcement remains problematic. The State Service for Intellectual Property and Innovation under the Government of the Kyrgyz Republic (“Kyrgyzpatent”) is the authorized body of the Executive Branch that issues documents to certify intellectual property. Kyrgyzpatent establishes the Appeal Council that is the primary body to hear intellectual property related disputes. The judicial system remains underdeveloped and lacks independence and the appeals process can be lengthy.

The Kyrgyz Republic is obligated to protect intellectual property rights as a member of the WTO. The Kyrgyz Republic acceded to both the WIPO Copyright Treaty and the WIPO Performances and Phonograms Treaty in 2002. The Kyrgyz Republic was not included in the 2019 Special 301 report but was listed on the 2019 U.S. Trade Representative’s Notorious Markets report, due to the availability of counterfeit goods sold at the massive Dordoi bazaar – Central Asia’s largest market. Counterfeit goods imported from China are also re-exported to Russia and Kazakhstan. No specific action has been taken against Dordoi market. The Kyrgyz Republic did not pass any new IPR related laws or regulations in 2020.

IPR-related codes, laws and regulations of the Kyrgyz Republic are listed on Kyrgyzpatent’s website. The few pending IPR bills listed on the Parliament’s website are mainly aimed to make minor changes into the existing governmental IPR-related decrees ( http://patent.kg/ru/sample-page-5-4/sample-page-2-2-3/). Criminal liability for violation of IPR is listed in the Criminal Code. Unfortunately, enforcement is lax and according to sources, there have been no successful prosecution for IPR violations in the history of the Kyrgyz Republic. The Kyrgyz Republic is not known as a major producer of counterfeit goods but sale/re-export of imported counterfeit goods remains prevalent. The State Customs Service regularly publishes alerts and notifications on the recent seizure of counterfeit goods on its official website. There is no central database of official statistics on the seizure of counterfeit goods to date. IPPA has a whole chapter on its website dedicated to IPR.

Resources for Rights Holders

Contact at Mission:
Munara Niiazova
Commercial Assistant
+996 312 59 76 07
NiiazovaME@state.gov

Country/Economy Resources:
American Chamber of Commerce
Address: 191 Abdrakhmanov Street, Office #123
Phone: +996 312 623 389, 623 395
Fax: +996 312 623 406
E-mail: pa.amcham@gmail.com, memberservices@amcham.kg

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/

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.  The number of bank payment cards in use increased by 2.5 times and e-wallets 10 times in the last five years. The Kyrgyz Republic maintained its B2 sovereign credit rating with Moody’s, which downgraded its outlook in November 2020 from stable to negative due to political instability. 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 of the Kyrgyz Republic), but all transactions are conducted through the Kyrgyz Stock Exchange. In 2020, the total value of transactions amounted to 11.83 billion Kyrgyz soms (approximately USD 140 million). 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 48.4 percent.

According to the IMF, the Kyrgyz banking system at present remains well capitalized with still sizeable, non-performing loans (NPLs). NPLs increased from 8.0 percent to 10.5 percent in 2020, with restructured loans of about 25 percent. Net capital adequacy ratio increased from 24.1 percent to 24.9 percent in 2020. Total assets in the Kyrgyz banking system in 2020 equaled approximately USD 3.4 billion. As of June 2020, the Kyrgyz Republic’s three largest banks by total assets were Optima Bank (approximately USD 430 million), Aiyl Bank (approximately USD 353 million), and Kyrgyz Investment and Credit Bank (KICB; approximately USD 328 million).

There are currently 23 commercial banks in the Kyrgyz Republic, with 312 operating branches throughout the country; the five largest banks comprise more than 50 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, following widespread de-risking in 2018. There are ten foreign banks operating in the Kyrgyz Republic: Demir Bank, National Bank of Pakistan, Halyk Bank, Optima Bank, Finca Bank, Bai-Tushum Bank, Amanbank, Kyrgyz-Swiss Bank, Chang An Bank,and Kompanion Bank are entirely foreign held. Other banks are partially foreign held, including KICB and BTA 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 37.5 percent of the total loan portfolio of the banking sector, followed by agriculture (29 percent) and consumer loans (12.5 percent). The microfinance sector in the Kyrgyz Republic is rapidly growing. In 2020, around 140 microfinance companies, 92 credit unions, 220 pawnshops and 421 currency exchange offices operated in the Kyrgyz Republic. Over the last five years, the three largest microfinance companies (Bai-Tushum, FINCA, and Kompanion) transformed into banks with full banking licenses.

Foreign Exchange and Remittances

Foreign Exchange

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 2020, the Kyrgyz som was one of the most stable currencies, with the dollar exchange rate rising 18.9 percent over the year. In 2020, the NBKR conducted 29 foreign exchange interventions and in total, sold USD 265.9 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.

Remittance Policies

Remittances typically account for 25-30 percent of GDP. In 2020 net remittances reached $2.37 billion, a 1,25 percent reduction from 2019. In January 2020, the Central Bank of Russia increased the cap on monthly money transfers to the Kyrgyz Republic to 150,000 rubles. (Note: In July 2019, the Central Bank of Russia had lowered the cap on money transfers per month to the Kyrgyz Republic to 100,000 ruble.)

In May 2019, the follow up assessment by the Financial Action Task Force (FATF) concluded that the Kyrgyz Republic demonstrated political commitment in improving its anti-money laundering and countering financing of terrorism, and in addressing technical compliance deficiencies identified in the 2018 Mutual Evaluation Report (MER) assessment. However, the country still lacks a comprehensive national risk assessment and underlying risk-based approach for monitoring and identifying suspicious activities.

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 836 million.

There are approximately 106 SOEs in the Kyrgyz Republic that play a significant role in the local economy. However 51 SOEs out of them are not profitable. 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.

In 2019, the Kyrgyz government established the National Managing Company JSC, a central holding company, to manage all 106 SOEs. The National Managing Company is wholly-owned by the Kyrgyz Government with a charter capital of USD 1.3 million. The intention of the centralized management system is to support poor-performing SOEs by facilitating more effective decision-making aimed at attracting management talent, additional resources, and investments in strategic SOE enterprises. Based on government assessments, as of November 2019, 51 companies out of 106 SOEs and 22 JSCs out of 52 were operating at a loss.

Privatization Program

The Kyrgyz government periodically auctions rights to subsoil usage and broadcasts tender announcements, including disseminating information to diplomatic missions, in order to attract foreign investors. There are no restrictions on foreign investors participating in privatization programs. The privatization process is not well defined and is subject to change. There is ongoing deliberation on the privatization of other state-owned assets, such as the postal service and the capital’s international airport, but lack of interest by private partners has stalled any potential moves.

The Kyrgyz government is no longer actively pursuing sale of its 100 percent stake in Megacom, the country’s largest telecommunications company. In 2015, the Kyrgyz government agreed to privatize AlfaTelecom (operating as MegaCom). In February 2017, the government authorities arrested the head of Parliament’s leading opposition faction, charging him with corruption based on allegations that he received a bribe from a Russian businessman in connection with the sale of a MegaCom stake in 2010. After years of delays, the Kyrgyz government announced it would auction its 100 percent stake in MegaCom in July 2017. To date, the Kyrgyz government has been unable to divest itself of the telecommunications firm.

Foreign investors – both companies and individuals – are generally able to participate in public auctions of state-owned properties unless specifically prohibited in the terms and conditions. There are, however, some land legislation restrictions concerning the property rights of foreigners. Information about terms and conditions of SOE sales are posted on the State Property Management Fund’s website (www.fgi.gov.kg).

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. From 2017-2019, local residents 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.

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). According to the online license register of the State Committee on Industry, Energy, and Subsoil Use, the Kyrgyz Republic currently has 2413 active extractive licenses, and EITI covers more than 95 percent of mining revenues in the Kyrgyz Republic. The EITI Board in September 2020 decided that Kyrgyz Republic has made meaningful progress with considerable improvements in implementing the 2016 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 2019, the Kyrgyz Republic made minimal advancement in efforts to eliminate the worst forms of child labor, though a regressive moratorium on business inspections severely limits the labor inspectorate’s capacity to investigate child labor violations. 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 a number of private security companies in Kyrgyz Republic, including around 50 private security companies. 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).

Additional Resources

Department of State

• Country Reports on Human Rights Practices;
• Trafficking in Persons Report;
• Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities and;
• North Korea Sanctions & Enforcement Actions Advisory

Department of Labor

• Findings on the Worst forms of Child Labor Report;
• List of Goods Produced by Child Labor or Forced Labor;
• Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World  and;
• Comply Chain

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 2020 Corruption Perception Index, the Kyrgyz Republic ranked 124 out of 176 countries rated, climbing from its position of 132 in 2016. 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. The anticorruption service within the State Committee for National Security has taken action against a limited number of ministers and parliamentarians. Over the past year, instances of corruption-related arrests against public figures from the political opposition have increased, and since October 2020 state law enforcement agencies detained nearly 60 people on corruption charges.

In recent years, 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.

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, they should seek the advice of legal counsel.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

The Kyrgyz Republic ratified the UN Anticorruption Convention in September 2005.  The Kyrgyz Republic is not a party to the OECD Convention on Combatting Bribery.

Hotline of the Anti-corruption Service of the State Committee for National Security:

Bishkek
Zhibek-Zholu Street
+996 (312) 660020
aks.gknb@gmail.com

Contact at “watchdog” organization:

Mukanova N.A., General Secretary
Anticorruption Business Council of the Kyrgyz Republic
Ministry of Economy
114 Chui Avenue, Bishkek
+996 312 895 496
secretariat.adc@gmail.com
www.adc.kg

The Kyrgyz Republic has a history of political upheaval, most recently in October 2020 when violent election protests ultimately resulted in the annulment of the election results and removal of former President Jeenbekov, who was replaced on an interim basis by current President Sadyr Japarov, who was elected in January 2021. Since independence, the Kyrgyz Republic has had 30 different prime ministers, often necessitating a change in cabinet members with the introduction of each new head of government. In 2005, 2010, and 2020 mass protests against government corruption precipitated the ouster of the country’s elected president. From 2010, the country experienced a period of relative political stability, and in October 2015, the Kyrgyz Republic successfully conducted competitive national parliamentary elections, and a nationwide Constitutional Referendum was held in December 2016. Another Constitutional Referendum is scheduled for April 2021.

In the days following the October 2020 toppling of the government and installation of the interim government led by Sadyr Japarov, political instability spilled over into the commercial sector; following the election protests, local marauders looted and raided the offices and facilities of multiple foreign-joint venture mining enterprises. In the recent past, the extractive resources companies have been the target of localized instability in 2018 and 2019, after relative calm in 2015 and 2016.

The Kyrgyz government has used aggressive tactics for political or economic leverage in negotiations with international companies. In May 2021, the Kyrgyz government assumed full control of the Kumtor Gold Company, a wholly owned subsidiary of the Canadian gold mining company Centerra Gold Inc, following a local court ruling that fined the Canadian company $3 billion for environmental damages. Foreign-affiliated companies have been subjected 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. Chinese investment projects continue to be treated with more significant scrutiny and pushback by local residents, relative to Russian, Korean, Japanese, and Western investment initiatives. Since the October incidents, local and foreign businesses show increasing concern about the government’s commitment to ensure the protection of private property and assets.

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. Interethnic tensions persist in the southern part of the country but remain relatively contained from the rest of the country. In the Batken region, demarcation along portions of the Kyrgyz-Uzbek and Kyrgyz-Tajik borders are in dispute. These disputed areas occasionally experience skirmishes between border guards that have resulted in crossfire violence, sometimes involving civilians.

The political and security climate in the Kyrgyz Republic remains fraught with uncertainty as the Japarov administration pursues sweeping constitutional changes to strengthen the powers of the presidency. A resurgence of COVID-19 could not only damage the country’s fragile economy, it may also be the catalyst for further political instability.

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. However, a shortage of highly qualified local candidates in IT, mining, energy, and manufacturing, forces international organizations to rely on expatriates for these skills. The official unemployment rate is approximately seven percent, though experts estimate the number of actual unemployed individuals exceeds this figure. Approximately one million Kyrgyz citizens work abroad because of limited opportunities in the Kyrgyz Republic.

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 fluctuating market, including hiring and firing workers at will. 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 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. However, in March 2021, the Parliament hastily approved a controversial bill that will require all trade unions to be affiliated with the government sanctioned Federation of Trade Union. If signed by the President, the bill would violate the principle “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, which makes up 25-35 percent of the economy have neither legal protection nor mandated safety standards. The law establishes occupational health and safety standards, and the State Labor Inspectorate is responsible for protecting workers and carrying out inspections in the event that worker safety and well-being is compromised. Limited staffing and the temporary moratorium on all business inspections from January 1, 2019 until January 1, 2022, inhibits unannounced workplace site-visits. See more at: http://www.state.gov/j/drl/rls/hrrpt/humanrightsreport/index.htm#wrapper

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. The law now prohibits people under the age of 18 from being sent on business trips, engaging in overtime work, night shifts, and working on days off or official holidays. 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.

The United States signed a bilateral OPIC (predecessor to DFC) agreement with the Kyrgyz Republic in 1992. OPIC financed part of the campus expansion of the American University of Central Asia in Bishkek and the University of Central Asia in Naryn.

Bank lending and international donor financing remain the primary mechanisms by which businesses in the Kyrgyz Republic seek to fund expansion projects. Few investment funds exist and operate in the Kyrgyz Republic. There are no new DFC-funded projects in the Kyrgyz Republic to date, but the lower-middle income country is considered a priority for DFC funding opportunities. The DFC currently supports two portfolio loan guarantees with two local banks to increase lending to Kyrgyz businesses. DFC products have the potential to facilitate social and commercial infrastructure developments, expand small and medium enterprise lending and assist the development of private equity funds in the Kyrgyz Republic, which are currently few in number.

*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/

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.

Dong-Thu Caohuu

Economic Officer
U.S. Embassy in the Kyrgyz Republic
171 Prospekt Mira
Bishkek, Kyrgyz Republic 720016
+996-312-597-000