The Kyrgyz Republic remains a frontier market oriented towards higher-risk investors, but the government under President Sadyr Japarov has expressed its desire to attract greater, more diversified foreign direct investment (FDI) and to develop a green economy to contribute to sustainable economic growth. In 2021, the President traveled extensively to seek investment partners in different regions, and government officials attended several trade and investment expositions in the region and beyond. While the official attitude toward FDI is positive and by law there are no limits on foreign ownership or control, in practice foreign investors may be subject to greater scrutiny than domestic investors, and the country’s capacity to provide a sound enabling environment for investment still faces many challenges. The legal framework for foreign investment mostly corresponds to international standards, but enforcement of these laws and private property rights is weak, and criminal investigations of commercial disputes is not uncommon.
Mining has historically been the industry that attracted the most FDI to the Kyrgyz Republic but a dispute with its largest foreign investor may have damaged investor appetite for this sector. In May 2021, the Kyrgyz government raided the offices of Kumtor Gold Company, a local subsidiary of Canadian mining company Centerra Gold, and fined the Canadian firm $3 billion for alleged environmental damages caused by running the Kumtor gold mine. The national government subsequently took over the mine and pursued Centerra Gold for corruption, criminal violations, and environmental damage in national and international courts. In September 2021, the London Bullion Market Association suspended Kyrgyzaltyn, the state gold refiner, from its Good Delivery List over issues concerning delivery and the potential for fraud, while the sale of Kyrgyz gold still suffers transparency issues. With the creation of the “Heritage of the Great Nomads” national holding company, the government has also signaled it intends to play a greater role in the development of the mining and precious metals industries. In April 2022, the Kyrgyz government and Centerra reached a conditional agreement by which the Kyrgyz government will take full control of the mine and give up its 26 percent stake in Centerra.
Still, other growing industries have attracted both domestic and foreign investor interest, including textiles, agriculture, education, franchising, and IT. Green investment is another promising area for potential investors as the Kyrgyz government increased its commitment to fighting climate change and sustainable development. In 2021, the Kyrgyz Republic joined the Global Methane Pledge and unveiled revised Nationally Determined Contributions (NDCs), which also opened many opportunities for foreign firms seeking to invest in industries such as hydropower, energy efficiency, and methane abatement.
Additional challenges to an enabling investment climate include a weak judiciary, lack of incentives for foreign investors, and a banking system highly dependent on the Russian financial system. The local currency, the Kyrgyz som, quickly depreciated against the U.S. dollar after the Russian invasion of Ukraine in February 2022, making not only imports more expensive but contributing to a drop in value of remittances that Kyrgyz migrant workers in Russia send home, which annually comprise roughly 30 percent of Kyrgyz GDP.
*Some information in the report may be subject to change upon date of publication and will be updated in the 2022 ICS.
|TI Corruption Perceptions Index||2021||144 of 180||http://www.transparency.org/research/cpi/overview|
|Global Innovation Index||2021||98 of 132||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, historical stock positions)||2020||$29||https://apps.bea.gov/international/factsheet/|
|World Bank GNI per capita||2020||$1,160||http://data.worldbank.org/indicator/NY.GNP.PCAP.CD|