EXECUTIVE SUMMARY
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 the IT, creative, and green economy sectors to contribute to sustainable economic growth. In 2022 the de facto Prime Minister, Akylbek Japarov (not related to the President), traveled extensively to seek international investment partners, and government officials attended several trade and investment expositions in the region and beyond. While the official policies governing FDI are 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 and intellectual property rights is weak, and criminal investigations of commercial disputes is not uncommon. In addition, the Japarov administration is pursuing revisions to its labor and investment codes, and implemented a new tax in January 2022 that levies a VAT on digital services, including the sale of goods and services via the internet.
Mining has historically been the industry that attracted the most FDI to the Kyrgyz Republic. However, there has been a significant chill on this sector after the Kyrgyz government nationalized the Kumtor mine, the country’s most valuable asset that was co-owned and operated by Canadian company Centerra Gold, in 2021. This chill has persisted even after the signing of an agreement between Government of the Kyrgyz Republic and Centerra Gold Inc. on April 4, 2022, resolving the dispute over the ownership and management of the mine. In June 2022, the President signed amendments to the law “On Subsoil Exploitation” mandating a minimum of 30 percent state participation to register a license to use subsoil resources, an indication that all deposits in the country will be developed under Kyrgyz authority and without significant foreign investment. Tengiz Bolturuk, who was appointed by the Kyrgyz government to manage the Kumtor gold mine throughout its nationalization, was arrested in September 2022 for alleged corruption and misuse of funds during this period and is currently on house arrest awaiting trial; the “Heritage of the Great Nomads” holding company to which Kumtor had been transferred was subsequently dissolved and state-owned enterprise Kyrgyzaltyn now manages the mine.
Still, other industries are growing and 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 increases its commitment to fighting climate change and supporting sustainable development. In 2021, the Kyrgyz Republic joined the Global Methane Pledge and unveiled revised Nationally Determined Contributions (NDCs), which offer many opportunities for foreign firms seeking to invest in industries such as hydropower, energy efficiency, and methane abatement.
Challenges to an enabling investment climate include a weak judiciary, lack of incentives for foreign investors, and a banking system that has been historically tied to Russia’s financial system. The local currency, the Kyrgyz som, temporarily depreciated against the U.S. dollar alongside the ruble after the Russian invasion of Ukraine in February 2022, further fueling inflation (reaching as high as 19 percent in 2022, year on year). Following fiscal intervention by the Russian Central Bank to stabilize the ruble and Kyrgyz sales of gold reserves, the som recovered value, and ruble-denominated remittances from Kyrgyz migrant laborers in Russia, which comprise approximately 30 percent of GDP, defied analysts’ predictions to reach record levels in 2022. As the som has gradually depreciated and the conflict in Ukraine continued, concerns remain over inflation and unpredictable remittances flows.
*Some information in the report may be subject to change upon date of publication and will be updated in the 2023 ICS.
Measure |
Year |
Index/Rank |
Website Address |
---|---|---|---|
TI Corruption Perceptions Index |
2022 |
140 of 180 |
|
Global Innovation Index |
2022 |
94 of 132 |
|
U.S. FDI in partner country ($M USD, historical stock positions) |
2021 |
$30 |
|
World Bank GNI per capita |
2021 |
$1,180 |