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.
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
The Kyrgyz Republic is actively seeking FDI, and the government publicly recognizes that it is an important component of economic development. While the government has implemented laws to attract foreign investment, a move to nationalize the country’s largest gold mine, the use of criminal investigations in commercial disputes, onerous bureaucracy, and an inability to protect investors’ assets 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. Still, net FDI inflows in 2021 recovered somewhat, increasing 30 percent compared to 2020 levels, but remained 65 percent lower than 2019 levels.
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 Kyrgyz Agency of Development and Investment (KADI, formerly IPPA), under the Ministry of Economy and Commerce, serves as a vehicle for 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 KADI 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 KADI 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 (Note: the position of Prime Minister was abolished in the 2021 constitution. End Note). 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 Commerce, 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, but the government has intervened in the ownership of politically sensitive industries like mining. Amendments to the “Law on Mass Media” to limit foreign ownership of television (excluding radio and print media) broadcasters to 35 percententered into force in June 2017.
Post is unaware of any formal investment screening processes in the Kyrgyz Republic.
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.
To stimulate the inflow of direct investment, Parliament passed the law “On Amendments to Certain Legislative Acts of the Kyrgyz Republic on Investment Support” in December 2020. This law provides for the following rules relating to investment issues:
The concept of “investment lots” is introduced, which provides investors with a package of services with the objective of helping the investor start their project;
Local authorities have the authority to execute land transfers;
Reduction of the investment threshold from $50 to $10 million USD for any investor that wants to negotiate an investment agreement directly with the Kyrgyz government;
The Kyrgyz Agency of Development and Investment has the right to issue an application to the Ministry of Foreign Affairs for an investor visa for individuals who have invested more than 10 million soms (c. $95,000); and,
Changes to public-private partnership (PPP) legislation aimed at simplifying procedure and attracting greater investment.
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.
2. Bilateral Investment and Taxation Treaties
The Kyrgyz Republic currently has bilateral investment treaties with the United States, Armenia, Azerbaijan, Belarus, China, Finland, France, Georgia, Germany, Hungary, 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 created 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. The Department of Commerce’s Commercial Law Development Program (CLDP) leads U.S.-Central Asia TIFA Working Groups on several topics including Digital Trade, Customs, and Women’s Economic Empowerment, with the goal of liberalizing trade, promoting investment, and improving the legal environment for business throughout Central Asia.
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 a 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.
The Kyrgyz Republic is not a member of the OECD Inclusive Framework on Base Erosion and Profit Shifting.
3. Legal Regime
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 and local 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 – the Jogorku Kenesh – which has established committees that oversee legislation and regulations affecting several areas of the economy, including: the Committee on Budget, Economic, and Fiscal Policy; the Committee for Fuel and Energy Complex, Subsoil Use and Industrial Policy; the Committee for Transport, Communications, Architecture and Construction; and the Committee on Agrarian Policy, Water Resources, Ecology and Regional Development. 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) and the State Service on Financial Intelligence (Financial Intelligence) 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 2022 budget and the new tax code. Draft bills or regulations must be posted on either Parliament’s website or the site of the Ministry that drafted the bill for 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. Still, in 2021 many business associations complained of lack of transparency in the passing of business-related legislation and insufficient consultation with the private sector.
The Kyrgyz Agency of Development and Investment (KADI) 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. Government investment councils exist to further regulatory improvements for the business climate. Since the creation of the Anticorruption Business Council under the Office of the President in 2021, it is unclear under what authority the preexisting Investment Council will fall (the President’s Office or a ministry). 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.
Throughout 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 Ministries of Economy and Finance were merged, only to be unmerged later in the year, and the Department of Geology and Subsoil Use became a part of the Ministry of Natural Resources, Ecology and Technical Supervision (MRNETS), formerly the State Committee for Ecology and Climate. MRNETS now oversees mining licensing. The State Committee of Information and Communications Technology, responsible for implementation of the Digital Transformation Strategy 2019-2023, became the Ministry of Digital Development. The government also eliminated the State Service of Combating Economic Crimes (Financial Police) and transferred its authority to investigate economic crimes to the Prosecutor General’s Office. The State Inspectorate on Ecological and Technical Safety was dissolved, and transferred to the Ministry of Labor, Social Development, and Migration. This move also shifted labor inspection authority to the labor ministry.
International Regulatory Considerations
In August 2015, the Kyrgyz Republic acceded to the Eurasian Economic Union (EAEU), which also includes 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. And while Kyrgyz exports to the EAEU steadily increased from $410 million to $642 million in 2019, the Kyrgyz Republic has not fully realized increased bilateral trade with EAEU member countries. Traders cite unilaterally imposed trade barriers restricting the flow of Kyrgyz exports and 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. In addition, Kyrgyz entrepreneurs have experienced issues exporting their goods through Kyrgyz-Kazakh border, which is the only EAEU land export route available. Kyrgyz truck drivers report more onerous technical requirements and inspections for their trucks to cross the border, while Kazakh authorities explain these checks are motivated by a desire to curb the smuggling of Chinese goods through the Kyrgyz Republic to the EAEU.
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. In a move to improve the investment climate, the new tax code created arbitration courts where tax disputes with the government can be resolved, rather than in a trial court. Previously, almost 90 percent of tax cases were decided in favor of the state under the trial court system. The hope of the arbitration court system is that it will be more independent and allow for disputes to be resolved faster.
Laws and Regulations on Foreign Direct Investment
The Kyrgyz Republic’s main legal framework for FDI remains the “2003 Law on Investments,” which reflects multiple amendments up until September 2021. One notable amendment lowers the investment threshold for direct negotiations between the investor and the Kyrgyz government (now $10 million compared to $50 million previously). This law contains an important article that is often interpreted differently by foreign investors and the Kyrgyz Republic, and the government has sought to amend it to limit direct access of foreign investors to international arbitration. While foreign investors claim Article 18 contains the Kyrgyz Republic’s consent to arbitration under either the ICSID Convention or UNCITRAL rules, the government argues each side must first seek consent of the other to bring the dispute to arbitration (see Penwell Business vs. Kyrgyz Republic). In 2022 Parliament introduced a bill amending the language of Article 18 to require the investor to receive consent of the Kyrgyz Republic for any dispute to go to arbitration, which may negatively impact foreign investor rights. Post continues to monitor the issue.
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. KADI 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 – with the government takeover of Kumtor gold mine in May 2021 the most recent example. In May 2021 Parliament passed a law permitting temporary external management of any company whose activities violated environmental law, posed a threat to human life and health, or caused great damage. This legislation, signed by the president, enabled the government to take over mine operations from Canadian-based mining and exploration company Centerra Gold while international arbitration proceedings were just beginning. 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.
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 Bilateral Investment Treaty 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.
According to the UNCTAD Investment Dispute Settlement Navigator, 14 investment disputes were brought against the Kyrgyz Republic between 2011 and 2021. Six cases are pending resolution, four were decided in favor of the investor, two were settled, and two were discontinued. The two proceedings involving U.S. investors were discontinued. In one case not captured in the database – Russian-owned company Penwell Business vs. Kyrgyz Republic (2021) – the tribunal decided in favor of the Kyrgyz government in a dispute involving the alleged expropriation of Penwell’s majority interest of 51% in the Kyrgyz state-owned mobile operator Megacom.
International Commercial Arbitration and Foreign Courts
The 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. 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. Additionally, the Kyrgyz government does not consistently recognize an investor’s right to seek international arbitration based on its interpretation of the domestic 2003 Law on Investments (see Laws and Regulations on Foreign Direct Investment).
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.
4. Industrial Policies
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 Commerce and the Kyrgyz National Investments Agency (KNIA) 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. The 2022 Tax Code provides some tax breaks for certain industries including agriculture, textiles, jewelry, aviation, and export-oriented production.
Incentives for clean energy investments are mostly tax breaks, such as VAT exemption for e-vehicles, though they are subject to the EAEU 15% import duty. (Consumers must still pay 12% VAT when they purchase an e-vehicle). The government has expressed a desire to attract investment to develop domestic hydropower production, but hurdles remain. For example, while the government offers a feed-in tariff with a co-efficient of 1.3 for companies that produce renewable electricity, the government will only sign the agreement to purchase this electricity once the renewable energy infrastructure (such as a hydropower plant) has been built. The lack of a purchase agreement prior to construction has led to little investment appetite beyond a handful of domestic investors. Other outstanding issues involve contradictions in legislation that involve water and land regulation that would affect any new hydropower plant project.
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 currently does not have any “forced localization” policies but in 2021 officials, including President Japarov, began to discuss introducing legal localization requirements. 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.
5. Protection of Property Rights
Real Property
Inviolability of property rights is written in the Kyrgyz Constitution and the Civil Code. 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.
All land related issues are covered by the Land Code. The Land Code provides a description of all land types and how each type is transferred, sold, or leased. The Land Code states that all land either belongs to the state, municipality, or private owner. Article 7 describes the duration of ownership for each land type. The Government sells “untitled” territories through open bidding only if the land plot does not have a direct licensed owner. The Land Code is currently being revised by a special Commission that consists of 13 government bodies.
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 Cabinet of Ministers 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 2022 Special 301 report but was listed on the 2021 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 2021.
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. KADI has dedicated a segment of its website to IPR.
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/
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, are increasing every year. The number of bank payment cards in use increased by 2 times and e-wallets 3 times in the last five years. In January 2022, Moody’s downgraded the Kyrgyz Republic’s sovereign credit rating to B3, and dropped its outlook from stable to negative, citing weak institutions and governance. 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 subsidized credit from the Russian-Kyrgyz Development Fund subsidized has led to 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 2021, the total value of transactions amounted to 9.7 billion Kyrgyz som (approximately USD 115 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 7-15 percent.
USAID has assisted small and medium enterprises (SME) through locally registered private equity funds to develop equity and mezzanine financing, which have invested $14.3 million into local SMEs in the past 2 years.
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 49.9 percent
According to the IMF, the Kyrgyz banking system at present remains well capitalized with still sizeable, non-performing loans (NPLs). NPLs increased from 10.5 percent to 11.1 percent in 2021. Net capital adequacy ratio decreased from 24.9 percent to 22.2 percent in 2021. Total assets in the Kyrgyz banking system in 2021 equaled approximately USD 4.2 billion. As of February 2021, the Kyrgyz Republic’s three largest banks by total assets were Optima Bank (approximately USD 846 million), Aiyl Bank (approximately USD 476 million), and Kyrgyz Investment and Credit Bank (KICB; approximately USD 475 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 28 percent of the total loan portfolio of the banking sector, followed by agriculture (18 percent) and consumer loans (12 percent). The microfinance sector in the Kyrgyz Republic is rapidly growing, with total assets of microfinance companies growing by 17 percent in 2021 compared to 2020. The three largest microfinance companies (Bai-Tushum, FINCA, and Kompanion) have transformed into banks with full banking licenses.
Foreign Exchange and Remittances
Foreign Exchange
Foreign exchange is available, and rates are competitive. The local currency, the Kyrgyz som, is freely convertible and was stable compared to other currencies in the region until the Russian invasion of Ukraine. In mid-March 2022 the Kyrgyz som fell roughly 25 percent against the U.S. dollar before stabilizing. While the som is a floating currency, the National Bank of the Kyrgyz Republic (NBKR) periodically intervenes in the market to mitigate the risk of exchange rate shocks, however the NBKR interventions were not able to mitigate the impact of the shortage of USD liquidity in the market due to the military conflict.
In 2021, the NBKR conducted 15 foreign exchange interventions and in total, sold USD 698.9 million. As of March 10, 2022, the NBKR conducted three interventions, selling off a total of 217.6 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. With occasional exceptions in the agricultural and energy sectors, barter transactions have largely been phased out.
Remittance Policies
Remittances typically account for 30 percent of GDP with almost all coming from Kyrgyz migrant workers in Russia. In 2021, net remittances reached $2.75 billion, a 19.5 increase from 2020. The Russian Central Bank cap on monthly money transfers to the Kyrgyz Republic is 150,000 Russian rubles.
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.
In 2021 the Eurasian Group on Combatting Money Laundering and Financing of Terrorism (EAG) presented a third report on technical compliance deficiencies and improving effectiveness of measures aimed at anti-money laundering and combatting the financing of terrorism. (The EAG is FATF-style regional body for Eurasian countries). The EAG report concluded the Kyrgyz Republic made significant efforts to eliminate some deficiencies related to the FATF recommendations. The report also noted significant work has been carried out to implement the recommended actions to improve the effectiveness of the AML/CFT system of the Kyrgyz Republic. Kyrgyzstan did not request re-rating and will continue to report to the EAG on further progress in improving the national AML/CFT system. The report is available here: https://eurasiangroup.org/files/uploads/files/FR_(2021)_5_eng.pdf.
Sovereign Wealth Funds
The Kyrgyz Republic has no official Sovereign Wealth Fund, though previously an informal sovereign fund originated from proceeds of the Kumtor gold mine and was comprised of shares in the parent company of the gold mine operator, Centerra Gold.
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.
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 December 2021 the Ministry of Finance announced plans to fully or partially sell 25 SOEs in 2022, including the Eurasian Savings Bank and Bakai Bank, among others.
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).
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).
The government of the Kyrgyz Republic unveiled revised, more ambitious Nationally Determined Contributions (NDCs) at COP26 in November 2021, including a goal to reduce greenhouse gas (GHG) emissions by 17 percent by 2025 under the business-as-usual scenario, and by 37 percent subject to international support (financial assistance). Climate change mitigation and adaptation efforts will focus on the three sectors that produce the most GHG emissions: energy, agriculture, and forestry and other types of land use. The Kyrgyz Republic has abundant water resources that the government plans to develop sustainably to increase the share of hydropower in its energy mix. Other plans include increased carbon flow from populated areas towards forests by creation of new forest plantations and expansion of the areas with perennial forests, and expansion of areas cultivated under organic land farming.
The Kyrgyz Republic joined the Global Methane Pledge in 2021. And while the government has committed to reaching net-zero carbon emissions by 2050, it has not announced or debuted any policy measures to achieve this goal. Post is unaware of any public procurement policies that include environmental and green growth considerations.
Most regulatory incentives to encourage clean energy development and climate-friendly business practices involve tax breaks and credits. For a full discussion, see Investment Incentives under the Industrial Policies section.
9. Corruption
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.
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.
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.
12. U.S. International Development Finance Corporation (DFC), and Other Investment Insurance or Development Finance Programs
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. 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.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source*
USG or international statistical source
USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other
Economic Data
Year
Amount
Year
Amount
Host Country Gross Domestic Product (GDP) ($M USD)
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%
Canada
$1,683
31%
Canada
$878
98%
China
$1,037
19%
China
$15
2%
Russian Federation
$968
17%
Tajikistan
$2
0.2%
United Kingdom
$380
7%
Germany
$1
0.1%
Kazakhstan
$241
4%
United Kingdom
$0
0%
“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
Natalia Sitnikov
Economic Officer
U.S. Embassy in the Kyrgyz Republic
171 Prospekt Mira
Bishkek, Kyrgyz Republic 720016
+996-312-597-000