2023 Investment Climate Statements: Kyrgyz Republic

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, the nationalization of Kumtor gold mine, the use of criminal investigations in commercial disputes, onerous bureaucracy, frequent turnover among government officials, 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 2022 recovered somewhat, increasing 29 percent compared to 2021 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 National Investment Agency under the office of the President of the Kyrgyz Republic (NIA), 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 NIA 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 NIA also 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. Nurlan Musuraliev is currently acting Business Ombudsman. The Institute of the 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). The Business Ombudsman issues annual reports and in March 2023 issued a report on “Legal Factors Creating Risks of Excessive or Unreasonable Pressure by Law Enforcement and Other Government Agencies on Entrepreneurship.” This report highlighted that in the Kyrgyz Republic, criminal cases are often initiated against entrepreneurs and legal entities at behest of state officials acting on their personal interests. In 2022, these risks were primarily to larger, taxpaying businesses. As a result, the Business Ombudsman recommended amending the Criminal Code of the Kyrgyz Republic to prevent inconsistent application of fines and taxes that were subject to abuse by officials. While the government has not announced a closing of the Institute, local businesses report that it has not been funded or in operation since April 2023.

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 and business community representatives from various sectors of the economy to discuss measures to improve the investment climate, promotion of entrepreneurship, and legislation to facilitate doing business in the Kyrgyz Republic. A permanent Secretariat, consisting of a head, a legal expert, and an administrative specialist, was established to support the activities of the Council. In October 2021, the President established the Anti-Corruption Business Council to build mechanisms for sustainable dialogue and interaction of state authorities with civil society and business on anti-corruption issues, to improve the business environment and investment climate, and strengthen legal protections of citizens and business entities.

The Council 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 2021 though the Chair of the Cabinet of Ministers essentially fills the same role as the Head of Government. End Note). The Kyrgyz government also interacts with the business community via a number of local associations, including AmCham, IBC, and the National Alliance of Business Associations of the Kyrgyz Republic ( http://caa.kg/ru/ru-naba/ ) that serve as a voice for business owners from individual entrepreneurs to corporations. The Ministry of Economy and Commerce, the Parliamentary Business and Entrepreneurship Development Council, and other government bodies seek the opinion of these associations during the policy-making process.

Limits on Foreign Control and Right to Private Ownership and Establishment

There are no official limits on foreign control in most sectors, 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.

Although Kyrgyz law guarantees equal treatment to investors and places no limit on foreign ownership or control, there are exceptions. The government may impose investor-specific requirements such as a high percentage of local workforce employment or a minimum number of local seats on a board of directors, particularly for large investors. According to amendments to the Law “On Subsoil” made on June 22, 2022 in the Article 19 “Subsoil Users” Clause 4-1: “Legal entity or an individual, including a foreign one, recognized as the winner of the auction or tender for granting the right to use large and medium gold and silver deposits shall create in the Kyrgyz Republic a legal entity with the mandatory state share of at least 30% to register its license for the right to use subsoil”. The law does not clearly specify if the new requirement applies only for newly registered mining companies; MPs have indicated a plan to add amendments specifying that the requirement will apply for all mining companies. June 2017 amendments to the “Law on Mass Media” limited foreign ownership of television (excluding radio and print media) broadcasters to 35 percent. A revision to this law proposed in 2022 could contradict international commitments regarding freedom of expression, and provisions of the draft law threaten the activities of independent mass media and journalists, including foreign mass media. It also complicates registration for media entities and requires the registration of any website. In the last two years, there were no other known cases of sector-specific legal restrictions, limitations, or requirements applied to foreign ownership and control.

Post is unaware of any formal investment screening processes in the Kyrgyz Republic.

Other Investment Policy Reviews

The International Monetary Fund (IMF) Article IV Consultation Country Report for 2022 can be found here: https://www.imf.org/en/Publications/CR/Issues/2023/02/15/Kyrgyz-Republic-2022-Article-IV-Consultation-Press-Release-and-Staff-Report-529832 

The May 2021 IFC report on post-COVID recovery of the private sector in the Kyrgyz Republic can be found here: https://www.ifc.org/wps/wcm/connect/publications_ext_content/ifc_external_publication_site/publications_listing_page/cpsd-kyrgyz-republic  .

The World Trade Organization’s 2021 Trade Policy Review, including investment policy, can be found here: https://www.wto.org/english/tratop_e/tpr_e/tp511_e.htm  .

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 often 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:

2. Local authorities have the authority to execute land transfers;

3. 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;

4. The National Investment Agency under the Office of the President of the Kyrgyz Republic (NIA) has the right to issue an application to the Ministry of Foreign Affairs for a 5-year investor visa for individuals who have certified plans to invest more than 10 million soms (~$110,000) and a 10-year visa for 20 million som (~$230,000);

5. Changes to public-private partnership (PPP) legislation aimed at simplifying procedure and attracting greater investment.

The government has adopted special tax regimes to support development of the digital and creative economy – namely the creation of High Tech and Creative “Parks”, members of which – including those operating with foreign investment receive advantageous tax rates and assistance in exporting their goods.

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.

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. In addition, the government’s nationalization of Kumtor mine, uneven or predatory taxation, and applications of fines have affected the investment climate. 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 business development, 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.

The government does not promote or actively require companies to disclose environmental, social, and governance reports.

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 2023 budget and the changes to the 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 2022 many business associations complained of lack of transparency in the passing of business-related legislation and insufficient consultation with the private sector.

The National Investment Agency under the Office of the President of the Kyrgyz Republic (NIA) 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). The Council has not met since June 2021. Contradictory government decrees often create bureaucratic paralysis or opportunities for bribe solicitation in order to complete normal bureaucratic functions. As is often the case in the Kyrgyz Republic, legal and regulatory framework is largely sound, but implementation and enforcement are weak. In addition, 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.

International Regulatory Considerations

In August 2015, the Kyrgyz Republic acceded to the Eurasian Economic Union (EAEU); 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. And while Kyrgyz exports to the EAEU steadily increased from $410 million to $642 million in 2019 and more than $1 billion in 2022, the Kyrgyz Republic still has not fully reaped the benefits of increased bilateral trade with EAEU member countries. Kyrgyz bilateral trade with other EAEU members states in 2022 saw a significant increase, owing largely to the shift in supply and trade routes in response to Russia’s illegal further invasion of Ukraine. The sustainability of this increase remains unclear. Traders continue to lament unilaterally imposed trade barriers (particularly by Russia and Kazakhstan) 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 and inconsistent technical requirements and inspections for their trucks to cross the border, while Kazakh authorities explain these checks are motivated by a desire to curb smuggling.

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 more so 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, if it agrees to the arbitration, 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 it will be more independent and allow for disputes to be resolved faster. However, the recent experience of at least one multinational company operating in the Kyrgyz Republic suggests that this is still not the case.

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. In addition, the head of the NIA has indicated that the government intends to overhaul the Investment Code, one of several ambitious legal updates still underway at the time of publication.

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. NIA 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 high-profile 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 Centerra Gold while international arbitration proceedings were just beginning. Court cases including a $3 billion fine leveled at Centerra by the Kyrgyz Republic and counter-suit by the Canadian gold company were vacated as a result of out-of-court negotiations securing the Kyrgyz Government’s ownership of the mine in exchange for its shares in Centerra. In a pending matter before the International Center for the Settlement of Investment Disputes (ICSID), International Mining Company Invest, Inc. (IMCI) alleges indirect expropriation and failure to adhere to fair and equitable/minimum standards of treatment regarding the government’s ban on uranium mining and subsequent revocation of IMCI’s license.

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. The Kyrgyz Republic deposited its Instrument of Ratification of the ICSID Convention with the World Bank on April 21, 2022, thereby completing the process of joining. There is one pending matter before the ICSID between the government of the Kyrgyz Republic and International Mining Company Invest, Inc. (IMCI) regarding the government’s ban on uranium mining and subsequent revocation of IMCI’s license.

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.

According to the UNCTAD Investment Dispute Settlement Navigator, 15 investment disputes were brought against the Kyrgyz Republic between 2011 and 2022. Five cases are pending resolution, five were decided in favor of the investor, three were settled, and two were discontinued. 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 entities 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.

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 (NIA) 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. A July 2022 amendment to the tax code created a similar “Creative Industries Park.” According to the Law, the creative industry is a type of economic activity based on creativity and the creation of intellectual property products using talent, innovation, technology, cultural heritage, which results in a product, work, or service of economic value. The 2022 Tax Code also provides some tax breaks for certain industries including agriculture, aviation, and other 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 private investment appetite beyond a handful of domestic investors. The Kyrgyz government is developing agreements with neighboring states, Russia, and International Finance Institutions to finance hydropower projects ranging from small (.1 to 1MW) plants to the resurrected plan for Kambar-ata (1,800 MW) Hydropower Plant.

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.

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 legislation protecting intellectual property (IP) and the country is a signatory to several IP related international treaties; however, enforcement remains problematic. The Kyrgyz Republic was not included in the 2022 Special 301 report but was listed on the 2022 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 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 did not pass any new IPR related laws or regulations in 2022.

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://new2.patent.kg/?page_id=1948 ). 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.  NIA has dedicated a segment of its website to IPR.

Resources for Rights Holders

Contact at Mission:

Anar Kachkinbaeva
Commercial Specialist
+996 312 59 7000
KachkinbaevaAB@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.kg , office@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 via debit cards, transaction machines, and digital payment systems 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.  Several banks began offering the use Google digital payment systems and expanded use of the Visa payment network.

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 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 2022, the total value of transactions amounted to 3.1 billion Kyrgyz som (approximately $36 million USD).  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 10-20 percent. Kyrgyzstan Bank Lending Rate was reported at 18.01% in Oct 2022. USAID has assisted small and medium enterprises (SME) through locally registered private equity funds to develop equity and mezzanine financing, which have invested $17.1 million into local SMEs in the past 4 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 in 2020 to 12.8 percent at the end of 2022. Net capital adequacy ratio increased from 22.2 percent in 2021 to 25.6 percent at the end of 2022 with a liquidity ratio of 82.8%. Total assets in the Kyrgyz banking system at the end of 2022 equaled approximately $6 billion USD, up from 4.2 billion in 2021. As of December 2022, the Kyrgyz Republic’s five largest banks by total assets were Aiyl Bank (approximately $898 million USD), RSK Bank (approximately $588 million USD), Optima Bank ($520 million USD),  Kyrgyz Investment and Credit Bank  (KICB; approximately $485 million USD), and Bakai Bank ( approximately $465 million USD). Banking sector profits and assets increased by a substantial amount in 2022, largely as a result of increased money transfers to and from Russia after Russia’s illegal invasion of Ukraine. The Kyrgyz financial sector has historically had strong ties to Russian banks. In an effort to reduce risk of sanctions exposure, most commercial banks took steps to sever or limit their use of the Russia-based MIR payment system in 2022.

There are currently 23 commercial banks in the Kyrgyz Republic, with more than 300 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 are seeking, but do not currently 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, Amanbank, Kyrgyz-Swiss Bank, Chang An Bank, and Kompanion Bank are entirely foreign held. Other banks are partially foreign held, including KICB, Bai-Tushum Bank (after a recent purchase by the owner of Dordoi Market), 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. For the first six months of 2022, credit portfolio of micro-finance sector of the Kyrgyz Republic accounted for 12 percent of the total loan portfolio of the banking sector, followed by agriculture (26 percent) and consumer loans (34 percent). The microfinance sector in the Kyrgyz Republic is rapidly growing, with total assets of microfinance companies growing by 8 percent in the first six months of 2022 compared to the same period of 2021. The three largest microfinance companies (Bai-Tushum, FINCA, and Kompanion) have transformed into banks with full banking licenses.

The Kyrgyz Parliament approved draft legislation on May 4, 2023 and signed by the President on June 9, 2023 that would allow individuals to submit secret declarations to the tax authorities to legitimize illegally obtained assets, including those derived from corruption. The secret declarations would then be destroyed after sixty days, with no process of public oversight. The law, once implemented, could endanger the Kyrgyz Republic’s ability to fulfill its international obligations on countering money laundering and corruption and could lead to its inclusion in the Financial Action Task Force’s (FATF) “grey” list. An analysis conducted by a local NGO found that being placed on the FATF grey list significantly impacted capital inflows, bank investments, and electronic transactions, with a corresponding negative effect on the country’s investment climate.

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. This shortage of USD has since been remedied by banks completing cash purchasing agreements, In addition the Kyrgyz government have placed limits on transporting physical cash out of the country for non-residents/citizens and mandated an increase in minimum reserves for the largest banks.

In 2022, the NBKR conducted 15 foreign exchange interventions and in total, sold $229 million USD (net). As of March 31, 2023, the NBKR conducted six interventions, selling off a total of $307.4 million USD. 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 approximately 30 percent of GDP with almost all coming from Kyrgyz migrant workers in Russia. At year-end 2022, the volume of money transfers to and from the republic, which includes remittances from migrant workers and movement of currency capital, was equivalent to $3.8 billion USD, compared to $2.75 billion USD in 2021. The net flow of currency to Kyrgyzstan at year-end 2022 reached $1.72 billion. This is $465.97 million less than in 2021 with a record level of currency transfers following the Russian invasion of Ukraine due to capital flight and Russians leaving the country. While currency transfers outperformed expectations in 2022, they are still highly unpredictable and tied to the fortunes of the Russian economy.

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.  As of February 2023, the Kyrgyz Republic is at least “partially compliant” in all sections with regard to FATF recommendations.

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 2018 report is available here:   https://eurasiangroup.org/files/uploads/files/FR_(2021)_5_eng.pdf.

The 2022 update to the report is available here: https://www.fatf-gafi.org/en/publications/Mutualevaluations/kyrgyzstan-s-progress-in-strengthening-measures-to-tackle-money-.html

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.

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 Parliament of the Kyrgyz Republic of the Kyrgyz Republic has approved the privatization program for 2023-2025. In addition to the sale of state property, this program provides for the transformation of state enterprises into joint stock companies while retaining 100% of the state-owned shares. As an alternative to privatization, mechanisms of public-private partnerships, investment leasing, and trust management of property are also practiced. The list of legal entities to be considered for partial privatization again includes the company “Alfa Telecom”, the country’s largest telecommunications company. The Cabinet of Ministers of the Kyrgyz Republic will decide who will be the controller of the company either the National Bank of the Kyrgyz Republic or the State Bank of Development.

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 ).

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;
• U.S. National Contact Point for the OECD Guidelines for Multinational Enterprises; and;
• Xinjiang Supply Chain Business Advisory 

Department of the Treasury

• OFAC Recent Actions 

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 .

CLIMATE ISSUES

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 with 37 percent of expenses subject to international financial support. 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 significant 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.

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.

RESOURCES TO REPORT CORRUPTION

Anti-Corruption Business Council
Adskyrgyzstan@gmail.com
aks.gknb@gmail.com  
http://www.stat.kg/en/soobshit-o-korrupcii/ 
Commissioner for Prevention of Corruption Aidaralieva Nestan Batyrbekovna by phone: +996 (0312) 32-47-40